Medium-term USD/JPY uptrend intact

A lack of credible announcements by global policy makers to support the growth and markets could pressure USD/JPY and Japanese equity near-term at a time when concern can naturally rise over negative feedback from the equity market sell-off to the real economy. 

"Though the price action on Aug 24 was a shock to us, a correction before the Fed's hike had been a risk, leaving us with the Sep '15 $/¥ forecast at 121", notes BofA Merrill Lynch.

Over the medium-term horizon, USD/JPY and NKY can regain upward momentum. It is believed that the USD can manifest its strength on the solid domestic economy as the dust clears and Japan catalysts in the coming autumn can draw market attention again, supporting the USD/JPY and NKY medium term or reducing short-term downside risk as last year (JPY catalysts for the autumn 02 September 2014). 

Three major catalysts are: (1) the end of security bill deliberation and the LDP's leadership election in September, which may let the administration be more aggressive in boosting support; (2) potential pricing of the BOJ's additional easing after weak 2Q15 GDP, and (3) the official kick-start of public pension unification scheduled for October.