USD/JPY has been the surprise package this week, retracing down to the 155/156 area seen in early June, ING’s FX strategist Francesco Pesole suggests.

Undervalued Yen pressures the US manufacturing sector

“Lower short-dated US rates have clearly been a big driver of the move, but politics has been playing a role here too. Donald Trump's Bloomberg interview highlighted the undervalued Yen (JPY) pressuring the US manufacturing sector.”

“And in Tokyo, political calls are growing louder that a weak Yen has passed its sell-by date. Investors' short Yen for the carry trade also have to deal with more opportunist Japanese FX intervention.”

“Ultimately, we think the US macro/rates story will dominate and should lead USD/JPY lower later this year. We currently have a 153 end-year forecast here.”