USD/JPY bottom out as systemic banking fears ease. Economists at MUFG Bank expect the pair to stabilize around the 130.00 level.

JPY gives back some of recent gains as banking fears ease

“The reversal of recent Yen gains reflects that investors have become less concerned for now over the risk of a bigger negative systemic shock coming from the banking system although the loss of confidence is expected to result in tighter credit conditions and less lending into the economy than would otherwise have been the case that will put a dampener on the global growth outlook.”

“US rate market participants remain reluctant to price back in further rate hikes for the Fed. It sets a much higher bar for US rates to regain higher levels that were in place prior to the collapse of Silicon Valley Bank earlier this month.” 

“We now believe it is more likely that USD/JPY will settle in the low 130.00’s for now rather than quickly retracing its steps back to the high from 7th March at 137.91.”

“JPY should derive more support in the month ahead as well from building speculation over a further shift in YCC policy settings in the run up to new Governor Ueda’s first policy meeting on 28th April. We still expect the BoJ to abandon YCC in Q2 but have recently delayed the timing from the April to June in response to recent banking disruption. However, we are becoming more confident that the BoJ will exit negative rates later this year.”