A detailed look at US indicators suggests that the economy is unlikely to turn decidedly back upward anytime soon. We expect the data to remain patchy for now, and believe the economy overall, while firm, will continue to lack upward momentum. Still, we do not rule out the possibility of renewed recession fears in the US emerging gradually or sparked by external factors, such as China.
From a supply/demand perspective, institutional investors, along with pensions and importers, may well raise their USD purchasing in their new fiscal year allotments in the face of NIRP if the markets should remain in a lull.
However, we suspect they will continue simply to buy cautiously on dip. At the same time, we believe exporters will lower their internal base USD/JPY rates to around ¥110 and lower their hedge selling levels (from around ¥115 or higher).
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In light of these facts and US economic trends, we maintain our view that the USD/JPY that there is less risk of a rebound to over ¥115 than a drop below ¥110.
We are watching any weakness in US payrolls or other key US data and a reaction after the brief rebound in stocks and oil as negative triggers.