The USD/JPY rebounded above the 109 level due to triggering some speculative shorts built up through early May.
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We believe the market still has a large volume of shorts and USD/JPY downward bias might not immediately strengthen. On the other hand, the USD/JPY fell below 110 and temporarily reached the 105 level as Japanese export firms were in procedures to set new internal standard rates for FY3/17.
Export firms have a tendency to set internal rates at slightly tougher levels than the actual market, and some companies put the USD/JPY at about 105. However, others did not have enough time to prepare for rapid yen appreciation and used 110.
We thus expect resistance at the 110 level from their hedge selling. We forecast tense vacillation near the current level in the near term, but look for continuation of a bias toward downward risk over the next few months.