Why USD/JPY Isn't Higher? Where To Target? - Credit Suisse

It should come as no great surprise that JPY has lost ground over the past week. Lower risk aversion and higher asset prices tend to draw money out of Japan, something the authorities are happy to encourage. And as Japanese weekly flow data show, Japanese residents have responded to JPY strength so far by buying still more overseas assets. The fact that USDJPY has now twice bounced sharply from the 111.00 level will also convince some that there is an informal official preference for that level not to be breached.

The question remains nonetheless as to why USDJPY is not even higher than current levels around 114.00? We note that there are growing signs that Japan's population is growing weary of Abenomics and in particular the concept of negative rates, judging by recent polls. It seems there are growing doubts about who exactly benefits from the policy mix and how effective it can be in reaching even its own aims. Media reports also state that since the Jan 29 BOJ easing decision, BOJ governor Kuroda had to make more appearances before the Diet after being summoned to explain policy than any other governor in any other February since 2002. We wonder how much scope Kuroda has to keep pushing with current strategy in this context, especially given that some key decisions only passed by a 5-4 majority even within the BOJ Board itself.

This encourages our view that upside for USDJPY is much more curtailed going forward, especially given the currency in any case is widely regarded as cheap on a valuation basis. We retain our USDJPY 110 3m forecast and are inclined to sell the pair on a move above 116.00 if positive global risk sentiment takes it there.

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