Japanese efforts to turn the USD/JPY bull turn around have been a little too successful, ING’s FX analysts Francesco Pesole and Chris Turner note.

USD/JPY set to be back to the 137/138 area

“They exposed a ‘fast money’ community that at the start of July had been exceptionally short Japanese Yen (JPY). And as is the case with carry trade strategies, a trend that was years in the making was reversed in a heartbeat. We think positioning is better balanced now and that a further drop will be orderly.”

“Our call is that USD/JPY will revert to being driven by macro factors rather than by position adjustment. Lower growth and US rates, plus the Bank of Japan on a path to higher rates (next hike in October) should drag USD/JPY back to the 137/138 area.”

“More Trump comments on the need for a weak USD are also a risk.”