Yen strategy from MUFG
MUFG Research discusses the JPY outlook and sees a scope for further JPY weakness (rally in USD/JPY) in the near-term.
"Today we will finally get the formal signing of the US-China Phase 1 trade deal with a signing ceremony taking place in Washington later today. This will do little in the way of moving the markets but it will certainly reinforce the more favourable financial market backdrop with optimism over global reflation still helping provide support for risk. The current tariffs have been confirmed as remaining in place but this is unlikely to dent market confidence at this point given that was widely expected. In that regard we see further scope for the yen to weaken over the short-term now that USD/JPY has broken the 110.00-level and is consolidating," MUFG notes.
"Expectations of capital outflows from Japan may well help reinforce expectations of further yen weakness. Portfolio outflows dried up in December into early January and some revival is now likely. While hedging costs have come down relative to a few months ago, short-term US rates are holding up. Yesterday's term repo operation (14-day of USD35bn) was oversubscribed suggesting demand for liquidity continues. But favourable financial market conditions may encourage some unhedged outflows from Japan," MUFG adds.
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