USDJPY: Expect BoJ to be side-lined on all fronts - TDS

According to Mazen Issa, Senior FX Strategist at TDS, next week’s BoJ meeting should reveal a resolute central bank in its yield curve control framework.

Key Quotes

“We expect the BoJ be side-lined on all fronts. Speculative ‘taper talk’ is premature though we think this dynamic will need to be reassessed in the coming months.”

“We view the recent move in USDJPY since the start of the year as a correction, not a reversal. We think the combination of two expected Fed hikes this year and real yield differentials should reinforce a floor for USDJPY.”

“Nonetheless, we are tactically neutral given positioning and risk of a further unwind of the ‘Trump trade’. We are watching 112.50; a break below this suggests risks of an accelerated extension towards 111.36 and 110.00/30. We would view these as key reassessment levels—and potential entry points—for strategic longs. We require a move above 115.50/60 to reconsider our tactical stance.”

“We think the next major USDJPY up-leg could be boosted by seasonal portfolio outflows. We see a growing risk that rising hedging costs will leave domestic institutional players little appetite to increase hedge ratios. This should spark a renewed move towards the 2015 highs near 125.”