Currency investors should consider buying NOK/JPY this week, advises Morgan Stanley in its weekly FX pick to clients.
"The NOK should benefit from higher oil prices and Norway’s government taking an expansionary fiscal course. In January, the petroleum fund transferred NOK 6.7bln ($781mln) to the government, the first such transfer since the fund was set up.The petroleum fund releasing its 2015 balance sheet on March 9 is unlikely to underwhelm the positive impact coming via higher oil prices and the global asset rally.
We use the JPY to fund the NOK long position. The lower USD will ease some EM funding concerns, keeping the high-yield rally underpinned. Simultaneously, upcoming meetings of the ECB and the BoJ should keep easing expectations underpinned.The BoJ's Kuroda has effectively ruled out cutting the deposit rate further is a positive for bank shares. Meanwhile, the BoJ will try to push the JPY lower ahead of the fiscal year later this month. Corporate Japan has assumed USDJPY at 119.50. A lower USDJPY rate increases the risk of corporates hedging the anticipated future revenue stream, which would be unwanted. Hence, it is likely that the BoJ will use its March 15 meeting to push the JPY lower.The best way of doing so is to buy private assets, providing a positive P&L for JPY-based fund managers and allowing them to run a higher risk tolerance for their foreign asset holdings," MS argues.
"We like to buy NOKJPY at market with a target of 14.00 and a stop at 13.20," MS advises.
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