JPY: Expect to hear more of the switch to yen funding – ING

USD/JPY remains bid after taking out some strong resistance near 152.00 recently, ING's FX analyst Chris Turner notes.

Carry trade is likely to stay popular

"We are not fans of the US Dollar (USD), but have to acknowledge that a switch from funding carry trades from dollars to yen could send USD/JPY to 155. Here, yen weakness is being driven by the view that it will be politically difficult for the Bank of Japan to raise interest rates. We are monitoring how the new LDP President Sanae Takaichi is progressing with confirming a ruling coalition and what implications that has for policy."

"For USD/JPY to come lower now, we need one of three things to happen: i) broad-based dollar weakness on soft US labour market data, ii) the BoJ surprising with a rate hike in late October or iii) some sharp correction in global equity markets. The first of those is the most likely – but not guaranteed. And until that point, low volatility means the carry trade will stay popular – now with the yen as the preferred funding vehicle."