Long USD/JPY: A Good Risk-Reward Trade Into BoJ & FOMC - SocGen

CFTC IMM positioning data are only a snapshot of part of the currency market, but the net long yen speculative position last Tuesday, ahead of the ECB meeting, was the biggest since March 2008. The market turned from a big yen short to a big long between the summer of 2007 and March 2008, and USD/JPY fell from 124 to under 100 before bouncing back above 110 by mid-August. After that, global crisis propelled the yen higher.

The BOJ’s decision to cut rates in a 5-4 vote in the midst of market turmoil six weeks ago back-fired but the backdrop is different today. The Nikkei has bounced 16% from its mid-February lows, and 10-year Treasury yields are 30bp higher.

We don’t expect any action from the BOJ when their meeting ends tomorrow, but even so, the likelihood of a hawkish tone from the FOMC on Wednesday and the bright underlying tone to risk sentiment makes long USD/JPY look like a good risk-reward trade here.

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