USDJPY: Downside risks are born again – MUFG

By FXStreet FXStreet (Delhi) – Derek Halpenny, Research Analyst at MUFG, suggests that there are clear downside risks for USD/JPY at present and as the US-Japan 2-year yield spread has fallen sharply and when that is coupled with global equity market declines, there remains a tendency for the yen to advance versus the dollar.

Key Quotes

“What is also changing dramatically that may reinforce this type of move in volatile market conditions is the huge jump in Japan’s current account surplus. Since Abenomics and QQE have been in place, Japan’s current account has been falling but there has been a dramatic turnaround in 2015. On a year-to-date basis, Japan’s current account surplus has totalled JPY 11.6trn, up from a tiny JPY 155bn in the same period of 2014. If capital flows dry up then this surplus is set to support the yen and could mean we see further strength.”

“No doubt the BOJ and the government will be mindful of this risk given the change in Japan’s external position. We remain of the view that the BOJ will not implement any further monetary easing at its meeting on 30th October but of course a further strengthening of the yen in the run up to that …read more

Source:: FX Street