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USD/JPY Around 110 a Prime Sell Opportunity for Japanese Hedgers – Deutsche Bank
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USD/JPY Around 110 a Prime Sell Opportunity for Japanese Hedgers – Deutsche Bank
Taisuke Tanaka, Strategist at Deutsche Bank, notes that as expected, the
Sendai G7 meeting of finance ministers and central bank governors only
put together a compromise agreement on macro-policy coordination.
Key Quotes
“Member nations took the position of looking at fiscal policy in terms
of their individual circumstances. We think this week's Ise-Shima G7
summit on 26-27 May (Thu-Fri) could also adhere to this agreement, and
believe its significance as a market event has declined.
Turning to the USD/JPY, while friction between Japan and the US remains,
there do not appear to have been notable problems at the G7 meeting.
The USD/JPY's recovery to the over-110 made Japan less sensitive
regarding “one-sided” rise in the yen.
Market interest is turning to US rate hikes again. The minutes of the
April FOMC meeting last week confirmed that many members support a June
rate hike, and attention was also focused on some Fed governors issuing
hawkish remarks afterward. As a result, as substantial speculative
USD/JPY shorts have been squeezed, we see the USD/JPY not to retrace so
immediately.
However, the April FOMC statement and the Chairman's comments were much
less hawkish. Now the market interest is focused on Ms. Yellen's remarks
during her 27 May (Fri) speech. In addition, we think fundamentals are
not solid enough to support sustainable recovery of risk markets’
Mar-Apr rebounds. If the Fed should further hike rates early, we might
see serious risk-off situation again, as we saw around the first rate
hike in Dec 2015.
While the USD/JPY is currently above 110 by unwinding of some
speculative shorts, it is also capped on the upside by hedge selling by
Japanese exporters that have set their in-house rate at 110. We see the
USD/JPY moving toward 105 or lower again for coming months, and
recommend that Japanese hedgers take advantage of this prime sell
opportunity.
In Japan, some major lifers release their annual business reports on 26
May (Thu), which will offer clues regarding their overseas investment
and hedging activities. Early next month, Prime Minister Shinzo Abe will
likely make decisions on fiscal policy and whether to postpone the
consumption tax hike. While how Japanese equities react will likely be
the initial measure of how this supports the USD/JPY, the medium-term
dominant factor for the USD/JPY is still a basic awareness of the US
economy and interest rates.”