Analysts at MUFG Bank dropped their bullish bias for USD/JPY and turn neutral expecting greater two-way flows at these elevated levels and taking account of the extent of monetary tightening now priced in the US rates market. They see the pair trading in the 121.00/131.00 range. 

Key Quotes:

“We still believe there is a reluctance to intervene directly in the FX market. But if the speed of the move continues and we see levels over 130.00 quickly, action is possible especially if around the time of a shift in policy from the BoJ. Rising energy prices in Japan has political implications too, just like elsewhere, and the government will not want to be seen as indifferent to this energy price squeeze being exacerbated by yen weakness ahead of the Upper House elections in July.”

“Given we have turned neutral on the outlook for USD/JPY, there are risks in both directions to consider. A more dovish outcome to the BoJ meeting on 28th April and further move higher in US yields could see USD/JPY breach the upside range we assume from here. Equally, the risks of BoJ action and intervention is no longer a negligible risk and that could result in a more abrupt decline in USD/JPY than we are assuming. We have widened the range in USD/JPY given the scale of the move in recent months.”