Intraday Market Thoughts

USD/JPY on the Brink

by Adam Button
Feb 14, 2018 3:31

Yen strength spilling from the US session into Wednesday Asia combined with broadening USD weakness sent USDJPY to 107, on the brink of breaching the 1 1/2 year trendline support. Japan's Q4 GDP slowed to 0.5% y/y from 2.2%, disappointing expectations of a 1.0% reading. The rout in risk trade followed by the latest rebound hardly put a dent in the trend of US dollar weakness, especially against the yen. The Premium short USDJPY trade hit its final 107 target for a 250-pip gain. The Premium video for the upcoming trades is found below. 

Yen Mystery?

Based on interest rates and the carry trade, this pair shouldn't be struggling. Japanese 30s pay just 0.8% and the BOJ hasn't given the slightest hint about raising rates. So what's the driver?

A big one is investment. Japan has been a no-go zone for a generation due to languishing growth but also due to better potential elsewhere. Now investors are giving Japan a fresh look as the economy shows small, budding signs of growth. Along with that, equity valuations in Japan are cheap.

Ashraf reminded us 3 weeks ago on the reasons to JPY strength and why it would persist.

So long as the weak-dollar paradigm extends and global growth shows signs of life, a steady trickle in the yen could continue. Note also that specs are heavily short the yen and could be forced to start covering if USD/JPY embarks on another leg lower.

Act Exp Prev GMT
Prelim GDP Price Index (y/y) [P]
0.0% 0.0% 0.2% Feb 13 23:50

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