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Japanese Yen Outlook: USD/JPY Month-End Bounce to be Capped as Downside Risks Remain

Japanese Yen Outlook: USD/JPY Month-End Bounce to be Capped as Downside Risks Remain

Justin McQueen, Strategist

JPY Price Analysis & News

  • USD/JPY Upside Capped
  • Bond Spreads Increasingly in Favour of USD/JPY

Despite the brief attempts to recover, USD/JPY upside remains capped. On the technical front, the trendline from the YTD low has put a halt to any rallies (110.50-60). Alongside this, since the FOMC meeting, USD/JPY has continued to drift lower amid the pullback in the US Dollar. What’s more, US/JP bond spreads have moved increasingly in favour of the Japanese Yen, while sentiment across the equity space remains fragile. Therefore, given these factors I lean towards fading rallies in the pair.

USD/JPY vs US/JP 10Y Bond Spread

Japanese Yen Outlook: USD/JPY Month-End Bounce to be Capped as Downside Risks Remain

Source: Refinitiv

With calendar somewhat quiet to close out the month, FX will likely centre around month-end flows. That being said, I wouldn’t take too much from the moves, should price action become erratic. It is more a point of being aware that volatility may pick up heading into the 4pm London Fix. However, month-end flows have typically been JPY negative, particularly on the crosses. In turn, any pick up in USD/JPY could be used to accumulated shorts in the pair.

GBP/JPY Performance on Month-End

Japanese Yen Outlook: USD/JPY Month-End Bounce to be Capped as Downside Risks Remain

Source: Refinitiv, DailyFX

USD/JPY Chart: Daily Time Frame

Japanese Yen Outlook: USD/JPY Month-End Bounce to be Capped as Downside Risks Remain

Source: Refinitiv

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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