JPY : Outlook for Rebalancing

(Tue, 29 Sept 2020). A strong start to the week for equity markets with upside potentially exacerbated from month-end flows, has kept the Japanese Yen on the backfoot. Additionally, given that Japanese equities had outperformed its G10 counterparts (Figure 1), month-end rebalancing flows are likely to weigh on the Yen, while various investment bank models tout USD buying. In turn, USD/JPY risks a move above the psychological 106.00 handle, while there are also upside risks in cross-yen.

JAPANESE EQUITY OUTPERFORMANCE POSES RISKS TO JPY

On the topside, resistance is situated at 105.80, where a break above opens the doors for a move towards 106.50. That said, we see upside risks in the short term for USD/JPY, given that uncertainty tied to the US election will remain and thus we expect USD/JPY to resume its downtrend post month-end rebalancing. On the downside, key support resides at 105.20-30.

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