How did USD/JPY Avoid 105? - Westpac
Sean Callow, Research Analyst at Westpac, suggests that the Japanese yen
remains the strongest G10 currency so far this year, up 11% against the
US dollar.
Key Quotes
“But at time of writing, USD/JPY is above 108, well clear of the 3 May
low of 105.55 which printed in the days following the Bank of Japan’s
largely unexpected steady hand. This is a notable recovery given that
the US 10 year treasury yield has fallen about 5bp over the same time,
which should make USD less attractive to Japanese investors.
With the Bank of Japan’s next policy decision a distant 16 June, what
else can account for the recovery in USD/JPY? Profi t-taking on long yen
(short USD/JPY) postions probably accounts for some of the yen’s
pullback. CFTC data shows leveraged funds (mostly hedge funds) in
futures markets switched to a net long JPY stance in the week ending 12
January, when USD/JPY was above 117. These speculators boosted their
long yen positions to a net 46.3k contracts on 12 April, at which point
USD/JPY was 108.50, a hefty mark to market gain.
Data in the week including the BoJ’s 28 April meeting shows that even as
USD/JPY tumbled more than 5 yen in disappointment over the lack of new
easing measures, leveraged accounts reduced their net long yen positions
sharply, from around 46k to below 30k. So perhaps the weight of money
has been to view the USD/JPY slide under 106 as time to take profi t,
not to hope for further decline towards 100.”
