Bank of America Merrill Lynch Research discusses USD/JPY outlook, and thinks that it's less likely to see a further deterioration in the domestic USD/JPY supply/demand balance reminiscent of 1H16.
"In fact, we think selling in USD/JPY has been mostly driven by foreign money rather than domestic money this time. We believe Japan would be a marginal buyer if volatility subsides or the USD/JPY slides to ¥105...
...We believe 105 will be supported by Japan flows, hence we leave the bottom of our range forecast at 105 (our range forecast has been 105-127) ," BofAML argues.
In line with this view, BofAML revised down its USD/JPY forecasts but "still thinks the pair will move up conditional on 1) stock market stabilization, 2) the BoJ's unchanged stance under the new leadership, and 3) USD supportive flows from the US (repatriation) and Japan (financial institutions' USD buying)," BofAML adds.
BofAML now expects USD/JPY to trade around 111 by end of March, to peak around 117 in 2Q18, and to correct toward 112 by year-end.