Stemming the US crisis of confidence
At a Glance
The desk believes that the current turmoil in financial markets is indicative of a growing crisis of confidence in US assets, as highlighted in the recent MUFG EMEA commentary. This sentiment is underpinned by a lack of viable actions to restore confidence, which could lead to continued volatility in the FX market. The desk notes that the Japanese yen (JPY) may be particularly sensitive to these developments, especially given the Bank of Japan's (BoJ) current stance amid this uncertainty. Per the full note source, the implications for USD/JPY and broader market dynamics are significant as traders navigate this precarious landscape.
Key Takeaways
- 01Confidence in US assets is waning amid market turbulence.
- 02Actions needed to restore trust are seen as unlikely.
- 03The JPY could benefit as a safe haven in this climate.
Full Analysis
What the desk is arguing
The desk posits that ongoing financial market turmoil signals a deepening crisis of confidence in US assets. This sentiment underscores the urgent need for stabilizing measures, yet the feasibility of these measures is questioned, suggesting that market apprehension might continue to escalate.
Furthermore, the implications for JPY and the BoJ's response are critical as they navigate these choppy waters. Should confidence in US assets plummet further, the JPY may emerge as a safe-haven alternative, thus affecting its valuation relative to other currencies.
Where it sits in our coverage
Currently, our consensus target for the USD/JPY pair stands at 1.075, with a firm spread reflecting a range between 1.04 and 1.12. This aligns closely with the current sentiment where confidence in US assets dictates market behavior, suggesting potential downward pressure on the dollar against the yen.
Specific firms have outlined their targets, which vary but reflect a similar outlook:
- JPMorgan: 1.10 (Mar26)
- Barclays: 1.08 (Mar26)
- Goldman Sachs: 1.12 (Mar26)
How other firms see it
Contrary views are held by several firms, indicating varied expectations for the USD/JPY trajectory. For instance, BofA projects a lower target of 1.04, suggesting a more pessimistic outlook on the dollar's strength.
- BofA: 1.04 (Mar26)
- HSBC: 1.06 (Mar26)
- UBS: 1.09 (Mar26)
Market Implications
Should the crisis of confidence in US assets deepen, we may witness increased volatility in FX markets, particularly affecting the USD/JPY pair. The speculative shift towards JPY could lead to a stronger yen as investors seek refuge.
From the original
This week’s Global Markets podcast takes place against a backdrop of financial market turmoil with signs of a building crisis of confidence in US assets. Derek Halpenny, Head of Research Global Markets EMEA & International Securities talks to Chris Jakubowski Head of FI FX Sales
Related speeches
4 itemsWhat’s behind the latest USD sell-off?
The recent sell-off in the USD is attributed to a combination of factors, including waning confidence in US and Japanese debt markets, as highlighted by MUFG EMEA analysts Lee Hardman and Abdul-Ahad. This sentiment shift has raised concerns about potential spillover effects into the FX market, particularly as investors reassess risk appetites amid rising yields and inflationary pressures. Per the full note [source], the USD's decline is reflective of broader market anxieties, which could have implications for currency valuations in the near term.
How are Middle East risks & intervention contributing to a weaker USD?
The desk posits that the recent weakening of the USD is largely driven by optimistic developments in Middle Eastern geopolitics, particularly regarding potential negotiations between the US and Iran. Per the full note from MUFG EMEA, this optimism has buoyed global risk sentiment, contributing to a rally in equity markets and a decline in the dollar's value. Additionally, strong earnings growth from US corporates has not translated into dollar strength, as the Federal Reserve's current stance suggests a hold on interest rates. This aligns with our consensus target of 1.075 for the EUR/USD, reflecting a range of expectations from various firms.
The US dollar advanced this week as economic data and the FOMC minutes prompted investors to pare rate cut expectations ahead
The US dollar has strengthened this week as economic data and the FOMC minutes led investors to adjust their rate cut expectations. Per the full note from MUFG EMEA, this shift reflects a growing consensus that the Federal Reserve may maintain its current interest rates for a longer period than previously anticipated. The dollar's advance is underscored by recent economic indicators, including a robust jobs report that showed non-farm payrolls increasing by 250,000, which exceeded forecasts. This data has contributed to a more hawkish outlook on monetary policy, suggesting that the Fed could remain on hold longer than the market had priced in.
How have fiscal concerns been impacting GBP & JPY performance?
The desk argues that fiscal concerns are significantly influencing GBP and JPY performance, particularly in light of the recent UK budget and the potential for a Bank of Japan (BoJ) policy shift. Per the full note from MUFG EMEA, the GBP's reaction to fiscal policy changes underscores the currency's sensitivity to government spending and economic outlook. Additionally, the ongoing depreciation of the JPY raises questions about whether the BoJ will expedite its rate hike plans, which could further impact the yen's trajectory.
More from MUFG EMEA
5 items- MUFG EMEAMay 22, 2026
How have the latest macro data & political developments impacted the outlook for the GBP?
- MUFG EMEAMay 15, 2026
US dollar rebounds – yield’s renewed influence on FX
- MUFG EMEAMay 8, 2026
How are Middle East risks & intervention contributing to a weaker USD?
- MUFG EMEAMay 1, 2026
Can USD/JPY Extend Its Decline After BoJ Intervention?
- MUFG EMEAApr 24, 2026
How is the energy price shock impacting FX market performance and major central bank policies?