USD/JPY: Downside appears to be limited - Westpac

Robert Rennie, Research Analyst at Westpac suggests that they have stuck with the view that the downside for USD/JPY appeared to be limited on the basis that the market is under-pricing the Fed (we expect taper Sep and hike Dec) and ongoing strong Japanese buying of foreign markets.

“Even though the North Korean situation has seen some wavering in demand in recent weeks, overall flows have held up well.”

“That is not to say there are not near term risks. However, we have argued dips below 108.50 would be limited and thus an opportunity on the basis of strong Japanese outflows.”

“This view has been rewarded given the very sharp rebound. However, just as we cannot get negative below 108.50, we fail to get overly optimistic above 111.50/112.”