Japanese Yen May Rebuild Shorts Amid Dovish Outlook

According to ING's Francesco Pesole, the Japanese Yen (JPY) faces a risk of returning to 160 against the US Dollar (USD). Pesole highlights that softer United States data and a more dovish Fed outlook should benefit the JPY due to its high rate sensitivity. However, he warns that rebuilding JPY shorts after an intervention episode leaves USD/JPY vulnerable to choppy trading.

Pesole notes that neither the risk of intervention nor growing confidence in a September Bank of Japan (BoJ) hike is sufficient to counter the trend of rebuilding JPY shorts. As a result, the path ahead may remain choppy, and a move back to 160.0 at some point this month remains a tangible risk.

Pesole's dovish Fed call is strengthening, which strengthens his bearish bias on the dollar. He notes that despite Friday's repricing, 11bp are still priced in for September, 28bp for December, and 40bp for April.