Weekly pick from CitiFX
"Although there were a few weak points, the result of the December Tankan showed no significant drop off. The DI of the large manufacturing enterprises stayed at the same level with the last survey in September. This means that there appears to be no major catalyst for Governor Kuroda to signal additional easing at the BoJ policy meeting later this week. Indeed, he may even stress steadiness in the corporate sector and such hawkishness could be taken as JPY positive.
Coupled with the latest deterioration in market sentiment, this presents a stronger outlook for JPY to start the week. Equity markets have seen weaker performance in the US and pass through to Nikkei weakness could see JPY buying by overseas real money investors who invest in Japanese shares under an FX neutral strategy.
Insomuch as renewed concern on China and potential weakening in CNY stemming from the announcement on a new trade-weighted index has been the driving force behind deterioration in investor sentiment, AUD could be more vulnerable. As such, short AUDJPY should be an attractive vehicle for JPY longs," Citi says as a rationale behind this call.
In line with this view, Citi recommended a short AUD/JPY from 86.60, with a target at 84.10, and a stop at 88.20 (currently at 87.54).
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