USD/JPY: Staying Bearish, Following Unwind of Longs Promised on BoJ Easing – Deutsche Bank
Taisuke Tanaka, Strategist at Deutsche Bank, notes that the BoJ policy
meeting today decided to maintain current policy while some in markets
speculated that the BoJ might increase ETF purchase and adopt a negative
interest rate for its loan program this time.
“The USD/JPY fell sharply from the high-¥111’s range to the ¥108’s.
However, needless to say, it doesn’t mean that the BoJ have altered its tone to a hawkish stance. They apparently remain very dovish overall. We see the Bank to proceed with additional easing while taking into account policy allocation over the longer term and responses to the risk-on/off markets. We hence expect the USD/JPY to return to around the ¥108-109 level after initial position adjustments finish and wait for the next driver.
We believe downward risk for the USD/JPY will continue winning, no matter how much additional easing is taken by the BoJ, absent a healthy US economy. Risk markets rebounded worldwide in Mar-Apr owing to restoration of modest firmness in US economic data. We think this condition helped prevent excessive decline by the USD/JPY. However, we do not think fundamentals are solid enough to sustain such risk-on trend.
We are cautioning that an adjustment phase might occur for markets, which have been exhibiting risk-on activity, over the next 1-2 months based on this view. We continue to see more potential for the USD/JPY to move to ¥105 if given a choice between ¥115 and ¥105. We conclude that resistance by the BoJ with additional easing is likely to have almost no bull impact on the USD/JPY when there is uncertainty in the US economy.
We think a technical sharp rebound in the USD/JPY, similar to last Friday, is a possibility if massive shorts for this rate accumulate at a time of steady US data and rebounds in risk markets. However, we believe market participants might have been overly assessing prospects of a negative interest rate for BoJ loans in light of the rapid market shift. The BoJ does not have a policy that can overcome the US factor to achieve a weak-yen effect, in our opinion.”