USD/JPY: More dips toward 105 expected, China matters – Rabobank

According to analysts from Rabobank, the Japanese yen is likely to remain solid and strong against the US dollar if China-related tensions with a host of other countries fail to improve. 

Key Quotes: 

“Ignoring the market fluctuations in March, USD/JPY has this week traded at the lowest level since August last year. The move is almost wholly due to USD weakness. In the month to date the JPY is the third worst performing currency after the USD and the CAD (which tends to get dragged around by USD moves). This is consistent with a market more enamoured with carry trades then safe haven. That said, insofar at the JPY is sensitive to geopolitical news in the Asian region. there is good fundamental reason for the JPY to retain a firm bias vs. the USD given the increase in China related tensions.”

“The JPY is likely to hold a firm tone vs. the greenback if China related tensions with a host of other countries fail to improve.”

“Recent weeks have brought the first serious clash in a while between China and India in Galwan, with both sides suffering casualties. There are reports that the ‘quad’ of India, Australia, Japan and the US are strengthening their defence cooperation. If the market is of the view that a Biden victory in November will reduce the phrase ‘China tension’ from the newswires, it is likely to be mistaken. Although we see scope for a USD correction in the weeks ahead, we also expect further dips by USD/JPY towards 105 in the month ahead.”