USD/JPY: Neutral bias for the week ahead - Westpac

Robert Rennie, Research Analyst at Westpac, suggests that they have maintained a neutral bias for USD/JPY on the basis that yield spreads and upcoming data were not likely to be supportive for a sharp move higher.

Key Quotes

“It has been risk sentiment that has been the key driver for the steady move higher in USD/JPY and sharp rise in ¥ crosses.”

“While we can see the ¥ cross move continuing, we find it hard to step up and buy USD/JPY at these levels.”

“JGB yields are likely to continue their steady move higher as the BoJ continues its ‘stealth taper’ move. Quite why the market has not reacted to this is a source of confusion for us. The July 19-20 meeting is a perfect opportunity for the BoJ to clear up the current confusion. On the one hand it is targeting an ¥80tn pace of increase in JGB holdings; on the other it is buying just ¥20tn (3m ann basis). With the DXY on the back foot, we have to stay neutral on USD/JPY until the confusion is cleared up. Dips below 110 remain a buy though.”