Westpac contemplates “A short-term JPY opportunity amid long-term headwinds?”
In summary from the note:
A textbook case for a quick USD/JPY reversal seems to be developing.
- The pair has been spinning its wheels between 150-151 recently, even as
the hawkish repricing in US rates has lost momentum. - At 4.15-4.35%,
long term US yields are more appropriately calibrated for a bumpier
disinflation glidepath and 3% growth, than they were at the start of the
year. - Fed fund expectations are not as obviously skewed relative to the
Fed’s dots either. - The “no landing” narrative has legs, but it’s not
clear conditions are ripe for either Fed officials or markets to
seriously contemplate pricing just -50bp or -25bp in Fed cuts this year.
On the JPY-leg, Q2 BoJ rate hike bets are solidifying, and JPY
intervention risk lurks at higher levels.
- There’s surely better value
selling USD/JPY into 151 as a short-term trade. - But we have a hard time
seeing USD/JPY trading sustainably lower, say sub-146, due to ongoing
structural JPY headwinds.
—
Looks like a technical roll over to me, yeah:
