'Stay long JPY' on trade tensions, policy threats and actions - JP Morgan

Analysts at JP Morgan argued to stay long on the Yen, citing two main reasons in its latest client note.

Key Quotes:

“Look for the trade-weighted USD to 'maintain recent range'.

'Stay long JPY' on trade tensions … In line with its tendency to fall in July and rise in August, volatility in some markets has begun moving higher on a combination of this week's policy threats and actions. 

The policy threat is the Trump Administration's proposal to increase potential tariffs on $200bn of Chinese imports from 10% to 25%, a decision on which should come by late August/early September.

Trade war remains the more worthy wildcard because the Trump Administration seems willing to press its perceived advantage over China as long as the US economy, S&P500 and Presidential approval rating remain resilient.

The BoJ's decision to allow greater volatility in 10Y JGB yields as it furthers a QE tapering that began about 18-months ago as part of the Bank's operational turn from targeting the quantity of money to targeting its price.”