FX Daily: Fight the yen at your own risk
At a Glance
The desk expresses caution regarding the recent strength of the Japanese yen, suggesting that the ongoing rally is heavily reliant on optimistic expectations of tightening by the Bank of Japan (BoJ) and potential asset allocation changes by the Government Pension Investment Fund (GPIF). Per the full note from ING, the current momentum may be unsustainable, particularly as USD/JPY has just breached key technical levels due to low market liquidity around the US holiday, highlighting the need for traders to be mindful of volatility. With broader USD sentiment still fluctuating, the potential upside for the dollar remains despite its current weakening, as evidenced by ongoing strength in US payroll figures and high energy prices. This context adds urgency for traders to tread carefully before attempting to capitalize on a dip in USD/JPY.
Key Takeaways
- 01Caution against betting against the yen amid its recent rally, which may not be sustainable.
- 02Recent volatility in USD/JPY driven by low liquidity and technical breakdowns at key levels.
- 03Potential downside targets around 152.0 could trigger further selling pressure on the yen.
- 04Broader USD sentiment remains volatile, with strength in payrolls and energy prices complicating forecasts.
Full Analysis
What the desk is arguing
The desk is cautioning against betting against the yen’s recent rally, as it appears fundamentally supported but may lack sustainability. Recent moves in USD/JPY through critical support at 155.0 down to 153.0 underscore the volatility influenced by market conditions, particularly thin trading volumes due to US holidays, as indicated by the source commentary.
The current technical landscape suggests further potential downside targeting 152.0, a level where previous rallies encountered resistance. A breakdown below this could pave the way to 150.0. Although the sell-off has been exaggerated by liquidity conditions, standing against the yen's momentum poses significant risks given current market sentiment dynamics and speculative carry trade unwinding.
Where it sits in our coverage
Our consensus target for USD/JPY stands at 152.0, with a range spanning from 149.0 to 161.7145. Notable per-firm targets for December 2026 include: - morganstanley: 140.0000 - rbc: 147.0000 - ing: 152.0000
This positioning is generally in line with the broader market outlook, reflecting a median expectation of the yen remaining resilient, yet notes from firms like tmgm listing a much higher target of 163.0000 indicate a variance in bullish sentiment within certain corners of the market.
How other firms see it
Broad sentiment appears aligned amongst firms predicting a continued yen strength, with rbc and ing targeting levels similar to our desk. Conversely, firms such as morganstanley espouse a more bearish outlook, projecting substantial declines towards the 140.0000 range by December 2026.
This dynamic underscores the interrelated nature of USD/JPY with the broader narratives surrounding the ECB’s stance on interest rates and fiscal policy amid ongoing global economic pressures. Insights from the Eurozone's rate path could serve as a vital intersect as traders look for cues on currency correlations.
Market Implications
Traders should monitor USD/JPY closely as it approaches critical support around 152.0, which if breached could initiate further downside pressure towards the 150.0 level. Attention to US economic indicators, particularly the upcoming CPI data, may add context to the dollar's potential recovery or continued decline.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
BNP Paribas | Bearish | 1.1500 |
UBS | Bullish | 1.1800 |
UOB | Bullish | 1.1800 |
From the original
Articles FX Daily: Fight the yen at your own risk Published 07:50 FX Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download The yen’s hectic rally is relying on quite optimistic bets on tightening and GPIF changes, and was probably exacerbated by thin
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