USD/JPY to sink as the end of the Fed tightening cycle is approaching – MUFG

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Economists at MUFG Bank held a neutral bias for USD/JPY in February. But now, they expect the pair to move downward.

Higher volatility means risk skewed more to the downside

“We must stress that we could quickly see justification for the Fed to do nothing next week. Risks are extremely high at present and the continued to decline of share prices for European banks underlines the risks of this risk event morphing into something greater which would have implications for risk sentiment and likely mean a larger downside move for USD/JPY over the short-term.”

“While the FOMC may well hike this month if conditions stabilise, we believe the collapse of SVB in the US does certainly take out the prospect of the FOMC hiking by 100 bps in total from here. We believe this change in market conditions – that effectively brings the end to Fed tightening sooner – will weigh on USD/JPY going forward.”

“We have a clear bearish bias for the outlook going forward with extraordinarily high levels of volatility very possible.”