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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. 

Click To Enlarge
USD/JPY on the Brink - Video Snapshot Feb 14 2018 (Chart 1)

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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