5 Nov 2013
Flash: Yen to break 98.00 with conviction? – BBH
FXstreet.com (London) - Research teams at BBH said the yen is outperforming on the day, though it fell short of breaking below the 98.0 level against the dollar.
“It is interesting to note that although USD/JPY has been most range bound since July, risk-reversals have been trending higher and are now once again flat for the first time since early June”.
“The first tapering scare back in May-June, which broke the upward momentum for USD/JPY, also took the 3-month risk reversals from about +1.0 (favoring USD calls) to a low of -1.7 (favoring USD puts)”.
“The normalization of this measure back to flat suggests lack of conviction in the direction of the pair – consistent with the recent range and diminishing expectations for any new meaningful action from the BOJ or MOF”.
“The BOJ seems optimistic about inflation reaching its target of 2.0% by 2015. In fact, Governor Kuroda affirmed overnight that the bank “will not hesitate in adjusting policy if needed” to achieve its price goal. Markets, however, are less sanguine”.
“Looking at forecasts aggregated by Bloomberg, for example, the mean expectations are for a 1.56% inflation rate in 2015. Japan released monetary base figures for October showing growth of 45.8% vs. 46.1% in September, the first monthly decline since January”.
“It is interesting to note that although USD/JPY has been most range bound since July, risk-reversals have been trending higher and are now once again flat for the first time since early June”.
“The first tapering scare back in May-June, which broke the upward momentum for USD/JPY, also took the 3-month risk reversals from about +1.0 (favoring USD calls) to a low of -1.7 (favoring USD puts)”.
“The normalization of this measure back to flat suggests lack of conviction in the direction of the pair – consistent with the recent range and diminishing expectations for any new meaningful action from the BOJ or MOF”.
“The BOJ seems optimistic about inflation reaching its target of 2.0% by 2015. In fact, Governor Kuroda affirmed overnight that the bank “will not hesitate in adjusting policy if needed” to achieve its price goal. Markets, however, are less sanguine”.
“Looking at forecasts aggregated by Bloomberg, for example, the mean expectations are for a 1.56% inflation rate in 2015. Japan released monetary base figures for October showing growth of 45.8% vs. 46.1% in September, the first monthly decline since January”.