BAML on USD/JPY
Bank of America Merrill Lynch Global Research discusses USD/JPY outlook and maintains a bearish bias in the medium-term, expressing that via a short exposure* in its portfolio.
"The purchase of US sovereign bonds by Japanese investors stood out in August at ¥1.8tn, registering the second month of strong buying, following the ¥2.5tn purchase in July. The purchase may have been unhedged to a certain degree considering the hedge cost and USD/JPY's price action. USD/JPY's downtrend during Tokyo trading hour has reversed since 5 August when USD/JPY broke 106. This is similar to March 2018 when USD/JPY's downtrend reversed after USD/JPY had sold off through 105," BofAML notes.
"The price action in August suggests dip buying of USD/JPY would emerge around 105 from Japanese institutions, possibly pension funds. On the other hand, speculative JPY long position has been cut back, according to the CFTC's IMM statistics and our flow analysis. Convergence of policy between the Fed and the BoJ would be pronounced on any softening in the US economic data. USD/JPY is trading 106-108 near-term but we maintain our bearish USD/JPY view medium-term with dip buying by Japanese institutions possibly slowing the pace of decline," BofAML adds.
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