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Westpac look for a short term dip in USD/JPY

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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:

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