The yen and Swiss franc are top performers today

MUFG Research discusses the JPY outlook and sees a scope for further JPY gains in the near-term towards 106.50 in USD/JPY.

"The recent dovish shift in ECB and Fed policy has reinforced the ongoing adjustment lower for yields outside of Japan. The race to the bottom is narrowing yield spreads between overseas and Japan, and encouraging a stronger yen. The BoJ has less room for manoeuvre to loosen monetary policy further even if the stronger yen continues to increase pressure to take corrective policy action. The BoJ disappointed some expectations for further policy stimulus as soon at last night's policy meeting by leaving their policy stance unchanged," MUFG notes.

"Overall, the developments leave the door open to further yen gains in the near-term. The BoJ's best hope to prevent the yen from strengthening further would be positive outcome from the upcoming G20 Summit. A significant breakthrough in US-China talks will likely be required to trigger a reversal of the yen strengthening trend. Even a temporary trade war ceasefire may not prove sufficient," MUFG adds.

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