Japanese Yen: Downside risks build against US Dollar near 158.50 – MUFG

MUFG’s Derek Halpenny highlights growing downside risks for the Japanese Yen versus the US Dollar as USD/JPY tests its 200-day moving average near 158.50. He notes that despite some easing in US Dollar momentum after the latest US jobs data, markets still price three further Fed hikes through mid-2027. Japanese fiscal speculation and JGB curve steepening could reinforce yen underperformance.

Yen underperformance and key USD/JPY levels

"The USD/JPY high today of 158.51 is just at the 200-day moving average level and if breached would certainly signal scope for further gains over the short-term."

"Given the dots profile, we will likely see minutes that likely broadly endorse current market pricing for rate hikes ahead and that should mean the support for the US dollar is maintained for now."

"Until recently, the yen was pretty much matching the performance of the US dollar against other G10 currencies, but the yen is now starting to underperform."

"However, Yomiuri is today reporting that the government is considering another supplementary budget to be compiled by November and passed through parliament by year-end."

"A break of the 200-day moving average will open up the potential for renewed momentum in USD/JPY with the potential for a full retracement back to the 160-level from early in September and to levels where intervention speculation would likely resume."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)