Taisuke Tanaka, Research Analyst at Deutsche Bank, suggests that the sentiment about whether the USD/JPY rate can stay in the ¥115-120 range has returned to a patient lull. Key Quotes “Surprisingly, yen depreciation resulting from the BoJ's surprise adoption of negative interest rates lasted only three business days. The USD/JPY bullish faction has lost momentum amid weak US indicators and falling equity and oil prices. Also, Japanese banks and investors have been struggling to realign their operations for negative interest rates. Yen-bearish flow is not active yet. Last week's closely-watched US employment statistics were a mixed bag. NFPs showed weak growth, but the unemployment rate and wages suggested the robust labor conditions. In the first 3-6 months of the Fed’s tightening cycle, strong indicators for rate hikes as well as weak indicators pointing to future uncertainties tend to trigger nervousness about the USD/JPY. It would be difficult to find any good factors to make the USD/JPY rebound for a while. UST yields have fallen more sharply than JGB yields around the BoJ’s negative interest rates surprise and are unlikely to signal any trends for the USD/JPY. FRB Chairman Janet Yellen will likely say well-balanced comments on future rate hikes with consideration of global risk-off in her testimony before Congress on 10 February. Fortunately, risk-off news this week over the Chinese New Year might be fairly scant (although greater attention will be needed next week when the Chinese market reopens). Negative interest rates will actually take effect on 16 February. We intend to carefully monitor how buy-on-dip support for the USD/JPY from Japanese financial institutions and investors can be reinforced. For the near term, sentiment about whether the USD/JPY rate will stay around 150-120 has returned to a patient lull. In the medium term, for maintaining an uptrend in the USD/JPY rate, the strong US economy remains the most important factor. Our economists have revised down their forecasts for US GDP and changed their forecast for interest rate hikes from three times for this year to once in December. We think the medium-term USD/JPY bullish trend has been reaching a critical stage.” For more information, read our latest forex news.