USD/JPY: A continuing drop in UST-JGB yield differentials could send pair to 100 - CitiBank

Analysts at Citibank, forecast USD/JPY to trade around 107 in a 0-3M period and at 104 over 6-10M. They have a bearish view long term. 

Key Quotes:

“As expected the BoJ left its policy unchanged, with the statement that suggests its intention to review the recent economic and financial developments more deeply at the next meeting scheduled on Oct 30- 31than usual. The market expectation of rate cut in Oct mounted which limit the JPY upside.  The mounted geopolitical risk lead money flow into safe-havens and support yen.”

“The ease of trade tension combined with the recent upbeat US ISM Non-manufacturing print and latest shock to oil prices appear to have taken the steam out of the duration rally for now. However, any further BoJ ease will be reactive to ECB/ Fed easing and therefore likely following JPY strength. As such, a continuing drop in UST-JGB yield differentials would likely point to still lower USD/JPY over time and even current levels seem to point to a move back to USD/JPY 100 or lower.”

“USD/JPY could not stand at 108 level and posted an inverted hammer pattern reflecting a rejection of last week’s highs above 108 and suggesting another leg down to the levels below 105. A breach of the 104.50 area would to us open the way for the levels closer to 99.”