USD/JPY gains seen extending to 108.50 - Scotiabank

JPY is soft, down 0.2% and a notable underperformer (along with gold) in an environment of elevated risk appetite, said Eric Theoret, FX Strategist at Scotiabank. Scotiabank analysts maintain a bearish JPY view on the basis of policy divergence between the Fed and BoJ but note the importance of broader market sentiment.

Key Quotes

“We maintain a bearish JPY view on the basis of policy divergence between the Fed and BoJ however we also note the importance of broader market sentiment and its impact on JPY—vulnerable to violent gains in periods of risk aversion as well as moderate weakness in periods of risk appetite.”

“Sentiment is dominant in the current environment and we note the shift in risk reversals suggesting a moderation in the premium for protection against JPY strength.”

“USDJPY short-term technicals: neutral-bullish—USDJPY is rising steadily from Monday’s one month low, its two-session channel hinting to near-term support around 107.20 and resistance around 108. We look to continued gains toward 108.50.”