Bank of America Merrill Lynch Research discusses USD/JPY outlook and highlights two plausible flow factors which linked to the pair being stable despite the sharp decline in US yields lately.

"First, foreign investors sold ¥3.8tn of Japanese equities during the first three weeks of March, printing the biggest 3-week sale on record. Second, Japanese purchases of foreign bonds this quarter have been unusually strong for a final fiscal quarter, totaling ¥6.9tn," BofAML notes 

What's Next? BofAML flags two convergence scenarios:

"Scenario 1: USD/JPY falls on reduced USD demand from Japan: Without a clear recovery in the US and Chinese data, US yields may remain depressed while the BoJ has limited easing options. In this case, Japanese investors are unlikely to keep adding USD FX risks with smaller buffer from rates and concern over potential USD weakness. They would lean toward European govies and IG credit with FX hedge. Foreigners' Japanese equity sale may support USD/JPY, but their position is becoming increasingly light.

Scenario 2: USD/JPY stable if the Fed cut is priced out. Alternatively, pricing out the Fed's cut on better global data would enable Japanese investors to diversify their portfolio into cheaper and riskier assets, including equities and EM assets, and away from USD assets. JPY can weaken with USD, keeping USD/JPY stable, while the US-Japan yield spread rebounds," BofAML argues.

"Bottom line: Risk/reward favors lower USD/JPY," BofAML concludes.