Sean Callow, Research Analyst at Westpac, notes that the USD/JPY has had an unexpectedly good week, which at least reduces the pressure on the BoJ near term.
“A rise in global bond yields encourages hopes for a pickup in Japanese investor outflows in these early days of Japan’s H2 FY16.
Yet the scale of the USD/JPY bounce seems likely to be in large part due to heavy long JPY positioning. At 27 Sep (latest data), CME leveraged funds were net long 60.7k contracts, the largest position since Mar 2008. This will surely be quite a bit lower now.
A firmer outlook for USD should at least keep sub-100 talk on the backburner for a while. But we still expect markets to gradually focus more on BoJ JGB purchases becoming patchier, capping USD/JPY gains multi-day/week and leaving a return to the 100 area still in sight. If risk appetite sours, this will happen sooner.”
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