Japanese Yen: Carry unwind supports gains against US Dollar - ING

Japanese Yen gains momentum against US Dollar, suggesting further upside potential, according to ING strategists Francesco Pesole, Frantisek Taborsky, and Chris Turner. The yen rally has been fueled by anticipations of Bank of Japan rate hikes and GPIF inflows, compounded by minimal US holiday liquidity. Analysts caution that USD/JPY could test 152.0 and 150.0 levels, warning against attempting to counter the current trend due to heightened volatility.

Despite broader USD sentiment potentially improving, the yen's dominance in market movements during the week indicates a JPY-centric story rather than a shift in overall sentiment. The pair recently broke through the critical 155.0 level before continuing to decline to 153.0 overnight. While short-term fundamentals may indicate the move is overextended, further carry trade unwinding remains a risk, particularly if the Fed raises rates next week.

Support for the yen rally is expected around 152.0, where it stalled in January and February, with a break below that level potentially paving the way to 150.0. Broader dollar weakness is also evident, despite other positive factors like strong payrolls and high energy prices. US equity futures hint at a subdued reopening, potentially providing some dollar support.

However, US CPI data and China trade balance figures could pose challenges for the dollar in the near term.