The current environment suggests a recovery in JPY remains strictly tied to US rates breaking lower – ING

The declining FX volatility may keep the Japanese Yen pressured by funding demand for carry trades, making USD/JPY even more reliant on a move in USD rates, economists at ING say.

USD/JPY may retest the 152.00+ “verbal intervention” area in the short term

The drop in FX volatility after last week’s action is being helped by the PBoC's stabilisation of the Yuan and should not help the Yen, which remains the most popular funding currency for carry trades. 

Verbal interventions in Japan and the softer Dollar momentum are helping a bit, but the current environment suggests a recovery in JPY remains even more strictly tied to US rates breaking lower. 

Our call remains bearish on USD/JPY moving forward, but in the very short term, the pair may retest the 152.00+ ‘verbal intervention’ area.