USD/JPY facing downside risks in the next weeks. We highlighted yesterday that ‘risk for USD is on the downside but 106.60 could be strong enough to check any weakness’. While USD did not take out 106.60, the robust recovery from 106.84 was not expected. Downward pressure has dissipated and the current movement is viewed as part of an on-going consolidation phase. In other words, USD is expected to trade sideways for today, likely between 107.10 and 108.05. USD eked out a fresh 5-month low of 106.84 yesterday (04 Mar) before rebounding strongly next 1-3 weeks. The price action is not out of line with our view from Monday (02 Mar, spot at 107.75) that ‘while further USD weakness is not ruled out, the odds for a sustained drop below 106.30 are not high’. That said, the downside risk remains intact unless USD can take out the ‘strong resistance’ at 108.70 (level was previously at 110.00).