USD/JPY: More downside is likely – Nordea

Massive liquidity support from the Fed and others now suggest we are leaving the crisis phase, meaning other drivers than dollar scarcity are set to become more important, which could favour the JPY, analysts at Nordea apprise.

Key quotes  

“Fed's crazynormous QE program and the potential for the Fed adopting yield curve control (YCC) suggest US real rates could drop further (~105), weighing on USD/JPY.”

“The US shows few signs of containing the virus yet, suggesting high macro uncertainty will prevail for now, and the equity market may soon be ripe for a ‘buy on rumour, sell on fact’ development (which could be good news for JPY).”

“USD/JPY is overshooting US real rates, a gradual return to some state of normality in funding markets means USD/JPY will likely have further catching down to do, as does the risk for a return of equity volatility within a week or two.”