USD/JPY has recently shown virtually little reaction to favorable factors such as BoJ easing or strong US indicators such as payrolls. Prime Minister Shinzo Abe, facing a Upper House election in July, may decide in late May or early June on an economic stimulus package and whether or not to postpone the consumption tax hike scheduled for April next year. This could provide some support for the USD/JPY from the positive impact on domestic share prices, but the effect is likely to prove very modest.
We do not foresee any decisive comeback in the rate until the markets gain more confidence in the sustainability of both the US economic recovery and global risk-on sentiment.
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The USD/JPY remains vulnerable if US data is weak, a drop in share or oil prices, or Chinese concerns should emerge before that time. Over the next several months, we see a greater risk of a fallout below ¥110 than a rebound above ¥115.