USD/JPY: Staying Bearish, Following Unwind of Longs Promised on BoJ Easing – Deutsche Bank
USD/JPY: Staying Bearish, Following Unwind of Longs Promised on BoJ Easing – Deutsche Bank
Taisuke Tanaka, Strategist at Deutsche Bank, notes that the BoJ policy
meeting today decided to maintain current policy while some in markets
speculated that the BoJ might increase ETF purchase and adopt a negative
interest rate for its loan program this time.
Key Quotes
“The USD/JPY fell sharply from the high-¥111’s range to the ¥108’s.
However,
needless to say, it doesn’t mean that the BoJ have altered its tone to a
hawkish stance. They apparently remain very dovish overall. We see the
Bank to proceed with additional easing while taking into account policy
allocation over the longer term and responses to the risk-on/off
markets. We hence expect the USD/JPY to return to around the ¥108-109
level after initial position adjustments finish and wait for the next
driver.
We believe downward risk for the USD/JPY will continue
winning, no matter how much additional easing is taken by the BoJ,
absent a healthy US economy. Risk markets rebounded worldwide in Mar-Apr
owing to restoration of modest firmness in US economic data. We think
this condition helped prevent excessive decline by the USD/JPY. However,
we do not think fundamentals are solid enough to sustain such risk-on
trend.
We are cautioning that an adjustment phase might occur
for markets, which have been exhibiting risk-on activity, over the next
1-2 months based on this view. We continue to see more potential for the
USD/JPY to move to ¥105 if given a choice between ¥115 and ¥105. We
conclude that resistance by the BoJ with additional easing is likely to
have almost no bull impact on the USD/JPY when there is uncertainty in
the US economy.
We think a technical sharp rebound in the
USD/JPY, similar to last Friday, is a possibility if massive shorts for
this rate accumulate at a time of steady US data and rebounds in risk
markets. However, we believe market participants might have been overly
assessing prospects of a negative interest rate for BoJ loans in light
of the rapid market shift. The BoJ does not have a policy that can
overcome the US factor to achieve a weak-yen effect, in our opinion.”
