JPM say that both near-term risks are tilted in favour of JPY strength, and longer term fundamental forces also warrant a grind lower in USD/JPY.
Look to stay short after the short lived pop in US yields took USD/JPY up to circa 107.
JPM cite:
- Japanese outbound flows have subdued over the last couple of weeks
- which lessens what has been a material impediment to JPY strength
- watch local political developments - further deterioration could threaten local equities which in turn could prove JPY-positive
- USD negative political drags stemming from the ongoing stalemate in fiscal talks
- more structural factors like the collapse in real rate differentials versus the US and the comparatively stronger external positions that favour JPY over USD
- yen is also notably cheap in trade-weighted terms
- the dollar remains 6% rich to its long-term average despite its recent depreciation
JPM say their stop on short US/yen trades is at 107.69.
