NAB FX Technical Strategy Research notes that recent Japanese MoF data shows that with USD/JPY drifting lower, Japanese investors have increased their interest in foreign bonds.
"The last three weeks of July saw over ¥1 trn. worth of foreign bond buying per week on average, confirming anecdotal evidence of decent Japanese interest for US paper on USD/JPY dips. Thus, for now technical support levels are being respected," NAB argues.
"Looking at our fair value model, over the past month USD/JPY has started to trade a little bit below fair value. Based on current levels a move sub-¥109 would be needed for the model to highlight a buying opportunity was in place
Looking at our forecast we still retain the view that USD/JPY can reach ¥114 towards the end of Q3 and then get closer to ¥118 by year end," NAB adds.
