MUFJ argues that any move in USD/JPY above 105.00 should falter as seasonal sales kick into gear in the weeks ahead
The firm argues that the ascend in the pair from 102.59 to 105.00 is to lose steam as "repatriation from Japanese operators is expected to pick up soon and last until around late March". For some context, the Japanese fiscal year ends in March.
Adding to that, the firm also says that the gains so far this year were largely driven by investors covering short dollar positions as 10-year Treasury yields climbed over 1% on spending and reflation prospects after the Georgia runoff elections.
In the bigger picture, they see USD/JPY in a core range of 101.00 to 106.00 with lesser likelihood of a push towards 100.00, all else being equal.
I can definitely get behind this argument but the technicals will also tell the story here. Right now, the pair is running into resistance at 105.00 but a breach there may see buyers target the 200-day moving average (blue line) @ 105.60 next.
In my view, that is the key line in the sand - as well as risk levels - and with flows likely to move in favour of the yen, there is potential for a pullback on the latest break back towards its 100-day moving average (red line) and perhaps just under 104.00.
That said, I reckon that a rapid drop towards 102.00 is rather unlikely barring any major de-risking or the market switching up its view on the reflation narrative and causing 10-year yields to fall back under 1% in a meaningful fashion.
