HALISTER1: USD/JPY May Eye 100 Unless BOJ Surprises With Bazooka: Analysis

USD/JPY May Eye 100 Unless BOJ Surprises With Bazooka: Analysis

(Bloomberg) -- USD/JPY may head toward 100 unless the BOJ surpasses easing expectations at its Wednesday policy review, with market positions indicating investors are weighted for yen strength, Bloomberg strategist David Finnerty writes.
  • FX pair have failed to breach bear trendline resistance; slow stochastics remain bearish with %D reading of 41 and declining
  • Market is positioned for downside in FX pair, as media reports on BOJ have left investors lacking clarity on what actions, if any, the central bank may take
    • USD/JPY 1-mo. risk-reversals have a bearish tone with investors having to pay a premium for puts for USD/JPY to drop over calls
    • Leveraged funds have a net long JPY position of 53,352 contracts in week ended Sept. 13 vs average of 32,625 contracts this yr, according to CFTC data
  • While Gov. Kuroda said last month there is ample room for more easing, Sankei and WSJ have reported BOJ board are split
  • FX pair may be under pressure should BOJ stand pat or announce incremental moves. USD/JPY fell more than 3% when BOJ decided to raise ETF purchases by 2.7t yen at July policy meeting, which was seen as limited by investors
    • 28 out of 40 economists forecast BOJ will leave its annual rise in monetary base at JPY80t, while 26 see no change in the policy rate in a Bloomberg survey
    • Nikkei said Sept. 14 BOJ will place further negative interest rates at the focus of policy; USD/JPY rose initially with introduction of negative rates on January 29 before falling through Feb on concern over impact on banks’ profits
    • USD/JPY pair rallied in 2013 and 2014 when BOJ announced increases in JGB purchases. With analysts who forecast additional easing expecting at least a 10t yen expansion, a smaller amount may further spur questions over policy limits
  • FX pair may also be weighed down by FOMC meeting; investors are expecting just a 20% probability of Fed hike at the Wednesday meeting, so USD/JPY unlikely to find support from FOMC. Any lowering of Fed dot plan for 2017 onwards may further weaken FX pair
  • NOTE: David Finnerty is an FX strategist who writes for Bloomberg. The observations he makes are his own and are not intended as investment advice.
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Source: BFW (Bloomberg First Word)

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