📝USD/JPY Now Trading In-Line With Our FV Model: MUFG Strategy

USD/JPY: Since March-2023 our USD/JPY fair value model has consistently signalled ‘over-valuation’ that is until recently. Driven by a multitude of factors; weak USD, extreme positioning and the potential of the BoJ tweaking policy, the spot rate has since corrected lower. USD/JPY is now trading in-line with fundamentals.

The reversal in JPY undervaluation helps to explain the sharp move lower in USD/JPY over the past week. The pair is now more in line with short-term fundamental drivers. The JPY could strengthen further in the coming weeks ahead of the BoJ’s upcoming policy meeting if speculation builds that the BoJ could adjust YCC putting further downward pressure on the spot rate and our short-term valuation model estimate which incorporates yields in Japan. - MUFG Strategy