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28 Nov 2013
Flash: USD/JPY next stopping point 105/107, it could happen fast - RBS
FXstreet.com (Barcelona) - As the market gets, again, accustomed to see USD/JPY above the 100.00 handle, Greg Gibbs, FX Strategist at RBS, reminds us the lack of obvious new catalyst for the gains in the pair.
Key Quotes
"US yields at the front end are lower, taper fear is keeping Asian EM on edge, China financial conditions have been tightened, and European currencies have been strong."
"The weaker Japanese trade balance reported last week pointing to consecutive monthly current account deficits is a factor that argues for a weaker JPY. The BoJ continues to reaffirm its commitment to its QQE policy; the doves are certainly in charge at the BoJ. These are reasons to see a weaker JPY, but are not new this week."
"This time JGB yields are very stable, so as the JPY falls it helps increase inflation expectations in Japan, thus pressing down real yields generating a virtuous cycle towards a weaker JPY. The rise in European currencies vs. the JPY is consistent with rising real yield differentials, since inflation expectations are declining in the Eurozone and perhaps even in the UK where recent inflation data were lower than expected despite generally stronger than expected growth data."
"This is a channel through which the BoJ's aggressive QE policy is working to weaken the JPY and generate a virtuous cycle of higher inflation; its target objective. The BoJ's QE policy is pressing down on yields across the curve and thus allowing higher inflation expectations in Japan to push down real yields in Japan."
"The USD/JPY rise is taking on its own life and waiting for nominal interest rate differentials or evidence of global risk appetite to justify its gains is likely to leave you scratching your head as USD/JPY breaks to new highs for the year. It has the May high now clearly in its sights and we should expect little resistance here as in reality it is not a much of a resistance level. The next significant stopping point is likely to be around 105/107, and ultimately levels like 110/112. Recalling how rapidly it moved from late last year, it could happen fast again."
Key Quotes
"US yields at the front end are lower, taper fear is keeping Asian EM on edge, China financial conditions have been tightened, and European currencies have been strong."
"The weaker Japanese trade balance reported last week pointing to consecutive monthly current account deficits is a factor that argues for a weaker JPY. The BoJ continues to reaffirm its commitment to its QQE policy; the doves are certainly in charge at the BoJ. These are reasons to see a weaker JPY, but are not new this week."
"This time JGB yields are very stable, so as the JPY falls it helps increase inflation expectations in Japan, thus pressing down real yields generating a virtuous cycle towards a weaker JPY. The rise in European currencies vs. the JPY is consistent with rising real yield differentials, since inflation expectations are declining in the Eurozone and perhaps even in the UK where recent inflation data were lower than expected despite generally stronger than expected growth data."
"This is a channel through which the BoJ's aggressive QE policy is working to weaken the JPY and generate a virtuous cycle of higher inflation; its target objective. The BoJ's QE policy is pressing down on yields across the curve and thus allowing higher inflation expectations in Japan to push down real yields in Japan."
"The USD/JPY rise is taking on its own life and waiting for nominal interest rate differentials or evidence of global risk appetite to justify its gains is likely to leave you scratching your head as USD/JPY breaks to new highs for the year. It has the May high now clearly in its sights and we should expect little resistance here as in reality it is not a much of a resistance level. The next significant stopping point is likely to be around 105/107, and ultimately levels like 110/112. Recalling how rapidly it moved from late last year, it could happen fast again."