USD/JPY to hit 135 as yield spreads move further against the yen – MUFG

The yen has resumed its sharp sell-off lifting USD/JPY above the 130.00 level for the first time since April 2002 as the Bank of Japan (BoJ) loose policy stance. Economists at MUFG Bank believe that the pair has a clear way to reach the 135.00 mark. 

BoJ strongly commits to maintaining loose policy hitting yen hard

“There appears little technical resistance now until the highs from back in early 2002 at close to the 135.00 level.”

“BoJ remains committed to maintaining loose policy. The BoJ’s belief that the pick-up in inflation will prove only temporary explains why they remain committed to maintaining loose policy.” 

“The BoJ will continue to cap Japanese yields even if yields outside of Japan continue to head higher. It leaves open the door for yield spreads between Japan and the rest of the world to move further against the yen which is already encouraging further yen weakness.”

“With the yen now resuming its sharp weakening trend, it places the Japanese government in a difficult position. Intervention would likely be ineffective right now when the BoJ has just doubled down on their loose policy stance and the Fed is set to step up the pace of policy tightening. If the yen continues to sell-off rapidly it will further increase pressure on Japan to intervene and/or adjust policy settings especially as the yen becomes even more deeply undervalued.”