The USD/JPY is hovering at around ¥112-113, but downside risk remains prevalent and a breach of 110 over the coming 3 months seems likely, says Deutsche Bank.
"We remain vigilant against downside risk in the USD/JPY over the next three months once the autonomous comeback in risk markets ends. The government is unlikely to allow a drop below ¥100 just before the Upper House election in July and may seek to halt any decline to ¥105-110 through currency intervention. At the same time, it will want to avoid criticism of weak yen guidance at the G20 Summit in May, which Japan will be hosting.
If the markets suspect that these circumstances will limit the scale and sustainability of any intervention action, speculators and Japanese hedgers could increase their dollar selling at around ¥110, DB argues.
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