USD/JPY: Yen remains the best of the rest in G10 – MUFG

Analysts at MUFG Bank, point out that with the Federal Reserve having addressed USD liquidity issues, they see the path opening up for USD/JPY to grind back lower over the coming weeks.

Key Quotes:

“The huge demand for US dollars even overwhelmed the usual favoured safe-haven currency, the yen, which resulted in USD/JPY going higher during the extreme risk off period. But we have had evidence this week to suggest this has been addressed. The JPY cross-currency basis has jumped this week from the low-point on 19th March to revert to more normal levels. That followed a USD take-up at the BoJ dollar supplying operation of USD 67.2bn. But we cannot downplay the scale of Fed actions and we believe those actions will play out most clearly in USD/JPY – and hence we see further downside risks for USD/JPY.”

“Cheap hedging costs could see greater hedging by GPIF also while, we would only see notable GPIF support at lower USD/JPY levels. With the Fed having addressed USD liquidity issues, we see the path opening up for USD/JPY to grind back lower over the coming weeks.”