From CitiFX Strategy:

  • Notes the USD/JPY run to nearly 104 but says it is not overvalued there
  • Looking for higher … “in the mid-run should be around 107-108..will achieve this target around late-October when Citigroup expects the BoJ’s additional easing”

Cite 3 reasons for a higher USD/JPY:

  1. “real interest rate differentials, between the US and Japan have expanded … “The recent level of the US/Japan TIPS yield spread indicates USDJPY could rise even beyond 110″
  2. Implied volatility in the options market may have bottomed in July …. “we saw such sharp rebound of the implied volatilities amidst lower realized volatilities right before USDJPY soared up in the autumns of 2012 and 2013…may be principally caused by hedge funds and other short-term investors who are recovering risk buffers to build up JPY shorts”
  3. Think risk reversals can rise further … the basic balance “(the current account + the FDI account) … is still close to the historical record … hedge funds and other short-term investors could build up JPY shorts”