The Japanese Yen is still set to strengthen further despite recent setbacks, in the view of economists at MUFG Bank.

USD/JPY remains significantly overvalued

“We continue to believe that the external backdrop is supportive for a lower USD/JPY which remains significantly overvalued.”

“The ongoing loss of confidence in US regional banks over the past week and the looming US debt ceiling debt deadline which the US Treasury says could be hit in early June should continue to place downward pressure on USD/JPY in the near-term.”

“The main upside risks in the week ahead for USD/JPY are posed by the release of the US CPI report for April if it shows more persistent inflation pressures although we expect the US rate market to remain reluctant to price in more hikes at current juncture.”