US uncertainty to weigh on JPY – Danske Bank

Analyst at Danske Bank Aila Mihr noted the Japanese Yen remains vigilant on the developments from the US political scenario.

Key Quotes

“The yen gained yesterday versus EUR and USD with USD/JPY falling 2 figures over the past 24 hours from 113 to 111”.

“Clearly, heightened US political uncertainty and/or a continued selloff in risk assets is a very bad cocktail for USD/JPY and we see risks skewed to the downside near term”.

“Implied FX volatility has also bounced higher in recent days, although from very low levels. As such, implied volatility still looks relatively cheap both historically and according to our FX volatility valuation model”.

“Usually, FX option volatility becomes more volatile with a tendency to spike when the global business cycle turns. Hence, both the underlying macro economic backdrop as well as rising political risks in the US suggest that implied volatility could rise further”.