Also, watch JPY weakness in Tokyo trading
Bank of America Merrill Lynch Research discusses the JPY medium-term outlook and maintains a bullish bias, noticing a potential change in JPY flow dynamic that would likely underpin the JPY after the end of the Japanese fiscal year.
"This fiscal year has seen a clear difference in JPY performance across trading time zones. JPY has tended to rise during London trading hours, particularly against EUR. New York trading hours have seen mixed JPY performance with USD/JPY rising, particularly this quarter, possibly reflecting the impact of repatriation by US corporates and strong fundamentals for the US economy, and JPY rising against high beta currencies, likely reflecting the selloff in US equities.
However, JPY's weakness in Tokyo trading hours has been the strongest trend, and has contributed to JPY's decoupling from risk sentiment, in our view. Heading into 2019, our analysis shows that this domestic flow dynamic may shift by the end of the fiscal year. USD/JPY's recent pullback in Tokyo trading hours warrants attention from this perspective," BofAML notes.
"We expect USD/JPY to fall to 105 by December 2019 and would sell USD/JPY's rally. We forecast USD/JPY to end 2019 at 105 and the pair to range between 100 and 118. The 18% high/low range is around the 5-year average of 17.0% and the 10-year average of 18.0%," BofAML adds.
For bank trade ideas and more, check out eFX Plus.
