According to OCBC Bank economic experts, it is expected that the USD/JPY pair will remain firm in the near term. As soon as the BoJ moves away from its YCC regime at some point, the JPY is going to be able to recover, and the Fed is set to pause or pivot its policy at some point.
As long as the USD carry is substantial, the pair may remain supported until market expectations on the Fed shift away from hawkishness or until BoJ expectations shift.
With the recent rise in USDJPY to 143, it is likely that policymakers will be leaning against the increase in wind energy activities in the future because of the sharp rise in USDJPY. USD/JPY upticks will only be slowed down if such activities are taken place, especially if the uptrend remains intact. It would take an alteration in market dynamics to reverse the trend (e.g. USD to turn around or yield differentials to narrow, etc.) to reverse the trend.
Our outlook for USD/JPY is that the USD can trade lower due to a moderate-to-soft USD profile (as Fed tightening continues into the late cycle, and the USD can fall when a pause or pivot occurs) as well as expectations that the BoJ will shift towards normalization of policy amid increased inflationary pressures in the country.
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