The Fed's inclination to gradually normalize monetary policy and the growing demand for safe-haven assets against the backdrop of aggravation of geopolitical risks allowed the "bears" in USD / JPY to turn into a counterattack. Since the end of March, the pair has grown in a rally in the 10-year US Treasury yields in the direction of the psychologically important 3% mark. As a result, because of the BoJ yield curve targeting policy, the differential of interest rates between US and Japanese bonds widened, which led to a flow of capital from Asia to the States. Nevertheless, since mid-May, the situation has changed. The Fed is ready to tolerate inflation above the target of 2%, which has set a barrier to profitability and has forced investors to face the yen.

The divergence in the monetary policy of the Fed and the Bank of Japan served faithfully and faithfully to the bulls for USD / JPY for several weeks. The futures market was too optimistic about the probability of four federal funds rate increases in 2018, which periodically exceeded 50%. After the publication of the May FOMC protocol, the indicator fell to 35%.

The yen is supported by the continuing rumors about the trade war and the growth of political risks in the euro area. Washington is going to focus on long-term deals with China. Steven Mnuchin spoke about the growth of supplies to China, oil, natural gas and other energy materials for $ 50-60 billion, the US also plans to double the export of agricultural products from the current $ 19.6 billion. Will Beijing do this?

In Italy, after the president's vote of no confidence in the proposed by the coalition to the Minister of Finance, popular parties (Five Stars, League) began to scare the head of state with impeachment and new elections. If the latter scenario is implemented, the right-centrist coalition can easily come to power.

The dynamics of popular parties in Italy

The political collapse in Italy, the risks of the republic's withdrawal from the eurozone, increase the demand for safe-haven assets. Italy is called second Greece, and the fact that its economy is 10 times larger creates a real panic on the market. The sale of local debt assets has boosted the yield of 10-year securities to its highest level since 2014.

Thus, the yen is popular due to a decrease in the likelihood of four rate increases on federal funds in 2018, as well as due to geopolitical risks and the risks of a trade war. Particularly strong in the current situation are the sales of EUR / JPY. However, and the "bears" for USD / JPY have big plans. According to the analysis of speculative positioning in the futures market, CIBC Research sees a structural "bearish" bias in the pair. It is supported by a less "pigeon" than the earlier rhetoric of the Bank of Japan. CIBC expects the US dollar to decline to around £ 104 by the end of this year.

Technically, on the daily USD / JPY chart, there is a depletion of the corrective movement to the downward long-term trend. Breaking the lower boundary of the rising short-term trading channel will increase the risks of activating the pattern "Shark". Its target is 88.6% corresponding to level 105.

USD / JPY, the daily chart