USD/JPY hasn't followed the Nikkei
USD/JPY made a quick move lower in the past 20 minutes but Citi explains why the dips are a buying opportunity.
They note that Japanese stocks erased their year-to-date gains this year but USD/JPY hasn't followed. Today, analysts at Citi look at why and see three reasons.
1. Unlike most of 2006/08 and 2012/2014 there are no short JPY positions to unwind in times of stress. They note that there has already been heavy put buying in options and that the Commitments of Traders report shows JPY short positions near multi-year lows.
2 The market still has some hope for additional BOJ easing in October. That was underscored by a JPMorgan note today. "Thta prevents the structural USD longs from giving up despite being presented with many reasons to do so.
3. The dollar is outperforming almost any measure of fair value against many currencies, probably due to FX reserve recycling. They note that the US dollar is just plain strong and USD/JPY is no exception.
Their takeaway is that USD/JPY is asymmetrical. It will rally when equities and bonds do but it's stubbornly strong when they fall.
