18 Nov 2015
USD/JPY likely to rise into year-end while BoJ to stay on hold – BofAML
FXStreet (Delhi) – Shusuke Yamada, FX Strategist at BofAML, expects USD/JPY to end year on a higher trajectory while the BoJ is likely to stay on hold in its upcoming meet.
Key Quotes
“The upcoming BoJ meeting is unlikely to be a big event for JPY. The Bank stayed on hold at its 30 October meeting, but USD/JPY and the BoJ's credibility held up as industrial production came in better than expected in September, the September FOMC meeting led to a stronger dollar, and expectations for additional BoJ easing had diminished ahead of the meeting.”
“Long dollar positions still look attractive for the remainder of 2015 in terms of risk/reward as the BoJ provides downside protection while the Fed’s potential liftoff provides the dollar’s upside. We continue to like our long dollar positions versus the yen and the euro.”
“The rise in USD/JPY in June was led more by technical factors and the support from fundamentals was relatively weak. The move was more similar to that in winter 2013 than in fall 2014. This time, the technicals are favorable, and positions are still light. USD/JPY also has strong seasonal characteristics through the end of the fiscal year. However, the phase is similar to that in fall 2014 in terms of fundamental support of policy divergence.”
“USD/JPY has been supported by the widening short-term yield spread and widening in the USD-JPY basis spread has resulted in strong FI flows into the JGB market. Our year-end USD/JPY forecast has been ¥123-125/$ since the start of the year and we still expect USD/JPY to rise into year-end and thus maintain our year-end forecast of ¥125/$. We think the risks are to the upside, though it may be too soon to expect ¥130/$.”
Key Quotes
“The upcoming BoJ meeting is unlikely to be a big event for JPY. The Bank stayed on hold at its 30 October meeting, but USD/JPY and the BoJ's credibility held up as industrial production came in better than expected in September, the September FOMC meeting led to a stronger dollar, and expectations for additional BoJ easing had diminished ahead of the meeting.”
“Long dollar positions still look attractive for the remainder of 2015 in terms of risk/reward as the BoJ provides downside protection while the Fed’s potential liftoff provides the dollar’s upside. We continue to like our long dollar positions versus the yen and the euro.”
“The rise in USD/JPY in June was led more by technical factors and the support from fundamentals was relatively weak. The move was more similar to that in winter 2013 than in fall 2014. This time, the technicals are favorable, and positions are still light. USD/JPY also has strong seasonal characteristics through the end of the fiscal year. However, the phase is similar to that in fall 2014 in terms of fundamental support of policy divergence.”
“USD/JPY has been supported by the widening short-term yield spread and widening in the USD-JPY basis spread has resulted in strong FI flows into the JGB market. Our year-end USD/JPY forecast has been ¥123-125/$ since the start of the year and we still expect USD/JPY to rise into year-end and thus maintain our year-end forecast of ¥125/$. We think the risks are to the upside, though it may be too soon to expect ¥130/$.”