12 Dec 2014
Buy USD/JPY dips towards 115 for 130 – Westpac
FXStreet (Barcelona) - Robert Rennie, FX Strategist at Westpac, anticipates USD/JPY to reach 130 in 2015 coupled with flatter curves and spread compression, hence notes that buying dips towards 115 through the year-end looks logical.
Key Quotes
“The BoJ has been able to both meet and more recently beat its self-imposed asset and monetary base targets and is thus well positioned to achieve the single most aggressive post-war monetary expansions from a G10 central bank. With this kind of commitment, there seems little to be gained by speculating on an imminent end or reversal of QQE. Rather, the area of speculation should be reserved for whether or not risk-averse balance sheets have moved.”
“Part of the Japanese balance sheet has indeed moved; but part has not. Japanese retail investors have bought around ¥8 trillion of net foreign assets in the last 12 months. That is largest amount seen from this set of investors since 2011 Q1. However, the institutional investors have tended to be a net seller of foreign assets over the same period. In effect, institutional investors have so far refused to accept that their ability to secure domestic securities is in decline, and look to source them in foreign markets.”
“Our sense remains that this will be a key feature of 2015. That is, institutional investors will be increasingly pushed off shore. This favours flatter curves in global bond markets and it also favours a weaker yen to the extent that flows are only part hedged. We expect to see 130 in USD/JPY in 2015 coupled with flatter curves and spread compression around the world. Buying USD/JPY dips to 115 through the end of 2014 into Q1 2015 looks logical to us.”
Key Quotes
“The BoJ has been able to both meet and more recently beat its self-imposed asset and monetary base targets and is thus well positioned to achieve the single most aggressive post-war monetary expansions from a G10 central bank. With this kind of commitment, there seems little to be gained by speculating on an imminent end or reversal of QQE. Rather, the area of speculation should be reserved for whether or not risk-averse balance sheets have moved.”
“Part of the Japanese balance sheet has indeed moved; but part has not. Japanese retail investors have bought around ¥8 trillion of net foreign assets in the last 12 months. That is largest amount seen from this set of investors since 2011 Q1. However, the institutional investors have tended to be a net seller of foreign assets over the same period. In effect, institutional investors have so far refused to accept that their ability to secure domestic securities is in decline, and look to source them in foreign markets.”
“Our sense remains that this will be a key feature of 2015. That is, institutional investors will be increasingly pushed off shore. This favours flatter curves in global bond markets and it also favours a weaker yen to the extent that flows are only part hedged. We expect to see 130 in USD/JPY in 2015 coupled with flatter curves and spread compression around the world. Buying USD/JPY dips to 115 through the end of 2014 into Q1 2015 looks logical to us.”