USD/JPY: Upside Far From Being A Clear Cut

If you are looking to be a buyer on this market, extreme caution is be required, as the broad-based USD weakness has resulted in both the DXY and long-dated US yields trending lower from both a micro and macro flows standpoint. In the vast majority of cases, unless aggressive buy-side action is seen in equities to offset this negative input, any USD/JPY recovery should be met with grateful sellers at what would be perceived as discounted prices. If the scenario doesn’t play out, note that the renewed dovish commitment by BOJ Kuroda may be an extra layer of short-term weakness for the Yen one must account for. The greater the base money in an economy via the expansion of a Central Bank’s balance sheet, the more detrimental for the currency on excessive supply in circulation. That said, the Yen is still very much a risk-on/risk-off & DXY/US yields story, so as the picture stands, don’t hold your breath for the upside to be as exploitable as other G10 FX vs USD.