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3 Dec 2014
USD/JPY: Yes to 125, No to 140 – BNZ
FXStreet (Barcelona) - The BNZ Research Team believes that USD/JPY can rally to at least 125 in 2015/16, and note that 140 levels are unlikely as the pair has already priced in the future BoJ balance sheet expansion.
Key Quotes
“All told, we believe USD/JPY can rally to at least ¥125 in 2015/16. Supporting the view is a recognition that the short yen view is ‘under-owned', bearing in mind that many fund managers (whether real or leveraged money) have been expressing their bullish USD/JPY views through options structures. They have been forced out of their trades on several occasions this year, either because of reverse knock-outs triggered when USD/JPY corrections have been deeper than expected (early October a case in point), or because of strategies involving call spreads and where underestimation of the speed and scale of the USD/JPY move has also taken them out of trades (during the run-up since the end of October in particular).“
“Our contention that USD/JPY already reflects in part the future track of BoJ balance sheet expansion, and that GPIF-related flows may be as much behind us as ahead of us, restrains our enthusiasm for jumping into the camp that is looking to much higher (¥140+) targets. Increasing resistance to ongoing yen depreciation, from South Korea in particular, as well as Asia and G20 more broadly, also needs to be borne in mind.”
Key Quotes
“All told, we believe USD/JPY can rally to at least ¥125 in 2015/16. Supporting the view is a recognition that the short yen view is ‘under-owned', bearing in mind that many fund managers (whether real or leveraged money) have been expressing their bullish USD/JPY views through options structures. They have been forced out of their trades on several occasions this year, either because of reverse knock-outs triggered when USD/JPY corrections have been deeper than expected (early October a case in point), or because of strategies involving call spreads and where underestimation of the speed and scale of the USD/JPY move has also taken them out of trades (during the run-up since the end of October in particular).“
“Our contention that USD/JPY already reflects in part the future track of BoJ balance sheet expansion, and that GPIF-related flows may be as much behind us as ahead of us, restrains our enthusiasm for jumping into the camp that is looking to much higher (¥140+) targets. Increasing resistance to ongoing yen depreciation, from South Korea in particular, as well as Asia and G20 more broadly, also needs to be borne in mind.”