USD/JPY: Macro and financial market backdrop points lower – MUFG

During June, the yen weakened sharply versus the US dollar from 128.61 to 135.87. Economists at MUFG Bank now expect USD/JPY to correct lower.

Upside now very limited 

“We expect the US dollar more broadly to strengthen in Q3 on tightening financial conditions and with inflation remaining high, and the Fed to tighten further, the scope for a near-term correction lower in USD/JPY is not large. However, yields have begun to fall sharply which if sustained in these fast moving markets could see USD/JPY correct more quickly than we expect.”

“Still, overall the macro and financial market backdrop points to USD/JPY lower, not higher.”