1 May 2014
Yen shorts remain at risk - ANZ
FXStreet (Bali) - According to Richard Yetsenga, FX Strategist at ANZ, since it is still premature to expect easing from the BoJ in the short-term, yen shorts remains at risk.
Key Quotes
"The portfolio effects of the high correlation between yen shorts and the US bond yield, raise the risk of faster position liquidation. On a day to day basis USD/JPY remains much more influenced by global developments than by local developments."
"Certainly the yen’s correlation with the US 10 year bond yield has continued to pick up, at the same time as the yen’s correlation with the Nikkei has stayed low. Many investors, however, seem to be expecting USD/JPY to break to the topside under the influence of further monetary easing in Japan."
"The gradual rally in US bonds which has occurred in recent weeks is imposing something akin to a cost of carry on long USD/JPY positions. In addition, we expect the BoJ to be slower in easing than the market has seemed to expect."
"Certainly we maintain our view that aggregate wage growth in Japan will ultimately disappoint and thus the central bank will be under pressure to do more to lift inflation in the latter half of this year."
"But we doubt the FX market can afford to be that patient, particularly given the high correlation now between the yen and the US bond yields."
"To the extent that short yen and short US bonds have heavily positioned consensus views, pressure on one position is likely to be transmitted relatively more quickly to the other".
Key Quotes
"The portfolio effects of the high correlation between yen shorts and the US bond yield, raise the risk of faster position liquidation. On a day to day basis USD/JPY remains much more influenced by global developments than by local developments."
"Certainly the yen’s correlation with the US 10 year bond yield has continued to pick up, at the same time as the yen’s correlation with the Nikkei has stayed low. Many investors, however, seem to be expecting USD/JPY to break to the topside under the influence of further monetary easing in Japan."
"The gradual rally in US bonds which has occurred in recent weeks is imposing something akin to a cost of carry on long USD/JPY positions. In addition, we expect the BoJ to be slower in easing than the market has seemed to expect."
"Certainly we maintain our view that aggregate wage growth in Japan will ultimately disappoint and thus the central bank will be under pressure to do more to lift inflation in the latter half of this year."
"But we doubt the FX market can afford to be that patient, particularly given the high correlation now between the yen and the US bond yields."
"To the extent that short yen and short US bonds have heavily positioned consensus views, pressure on one position is likely to be transmitted relatively more quickly to the other".