USD/JPY: Below 104.54 likely to drop under 100.00 – CitiBank

Analysts at Citibank warn that the USD/JPY pair could drop below 100.00, it the yield differential between US and Japanese bond continue. 

Key Quotes:

“China said it will impose retaliatory tariffs against about $75 billion worth of U.S. goods. The US president Trump then said he would raise existing duties on $250 billion in Chinese products to 30% from 25% on Oct.1 and tariffs on another $300 billion of Chinese goods, which start to take effect on Sept.1, will not be 15% instead of 10%. Escalating trade tension lead money flow into JPY.”

“The Fed Chair Powell’s speech in Jackson Hole implied series of downside risks but did not mention any measures. The view was seen as leaning to dovish.”

“Any further BoJ ease will be reactive to ECB/ Fed easing and therefore likely following JPY strength. Moreover, supports to Japanese activity may also stem from upcoming sporting events including the Rugby World Cup and 2020 Olympics. As such, a continuing drop in UST-JGB yield differentials would likely point to a move back to $/JPY 100 or lower.”

“USD/JPY showed the bearish signal last Friday. We expect the pair may drop again with important support at 104.54-87, and may test lower at 99.02-54 if the support pivot is broken.”