We think the USD/JPY could move little if US non-farm payroll data shows solid but not overly strong growth of 150-200K MoM, and see that it might stay at around the apex of the triangle for some time.
While it may move toward a formation like that of the stalled market just above 100 for February-August of 2014, uncertainty surrounding the US presidential election, risk-averse factors simmering in financial markets suggest less likelihood of the USD/JPY trending undisturbed. In the medium-term, we see the key condition for sustained support for the USD/JPY is that US economic confidence recovers promptly and to sufficiently strengthen the market expectation on multiple interest rate hikes.
Without this condition, we think even further easing by the BoJ would not be effective in sustaining a weaker yen. Moreover, even if the likelihood of multiple US rate hikes increases, we think it would probably take several months for the market to factor this in.
We estimate that it will be difficult for the USD/JPY to hold patiently above 100 until that time. Our end-2016 forecast is 94.
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