USD/JPY Remains Weak

WikiFX News (3 Oct.) - According to a research of the United Overseas Bank (UOB) released on September 1, USD/JPY tends to be bearish till the end of the year.

With Japan introducing a policy of low interest rate, the Japanese yen has become one of the world's most traded currencies due to the attractive carry trades. Previously, the country's central bank attempted to turn deflation into inflation by enlarging the asset purchase, which increases the currency supply and weakens the currency value. Consequently, it boosted exports but lifted import costs as well, especially the commodity price.

Besides the monetary policies of the FED and the Bank of Japan, the risk-on tilt is also an important factor affecting the price of USD/JPY. As a traditional safe haven and a funding currency with a low-interest rate, JPY will obtain support from both flights to safety and financing repayments once risky assets become less alluring amid the worsening market sentiment. On the contrary, the support for the yen will contract if the market is steady.

Shinzo Abe's resignation is an accident for the yen, which highlights its hedging value, said an analyst of the UOB. Meanwhile, the central bank is expected to hold the policy outlook unchanged because of the Liberal Democratic Party's secured power.

The analyst added that the price of USD/JYP would keep weak considering the overall pressure on the dollar. With that said, the pair is expected to decline further to 104 in Q4 while targeting 104 in Q1 & Q2 next year.

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Chart: Trend of USD/JPY