USD/JPY: Solid Support from Buying on Dips – Deutsche Bank
Taisuke Tanaka, Strategist at Deutsche Bank, suggests that there is a
solid support for USD/JPY from buying on dips and only slight upside
constraint is from the hedging.
“As an index investor, the GPIF is likely to engage in buying on dips when the USD/JPY declines, providing more robust support than the life insurers. However, it is unlikely to chase upside and drive USD/JPY higher because its foreign securities investment allocation is already close to the target level.
The GPIF has reportedly started forex hedging its foreign securities holdings, but probably only on a limited scale. Dynamically engaging in forex hedging on a large scale would have a major impact on the market, which would conflict with its behavior as an index investor. We do not think it is necessary to be concerned that forex hedging by the GPIF will encourage the yen to appreciate. Although this may restrain upside to a degree, the GPIF is basically likely to continue to support the market through buying on dips.”