USD/JPY to trade lower beyond the near term – OCBC

USD/JPY continued to drift higher, taking cues from higher US Treasury yields and USD rebound. Economists at OCBC analyze the pair’s outlook.

Intervention risks likely overblown

Path of least resistance may be skewed to the upside given USD strength. While there are chatters of the risks of BoJ intervention, it is important to note that policymakers care more about excessive volatility than the level in itself.

Beyond the near term, we expect USD/JPY to trade lower on the back of a moderate-to-soft USD profile (as Fed tightening stretches into late cycle and that USD can fall when pause or pivot comes into play) and on expectation for further BoJ shift towards policy normalisation amid higher inflationary pressures in Japan.