Westpac contemplates "A short-term JPY opportunity amid long-term headwinds?"
In summary from the note:
A textbook case for a quick USD/JPY reversal seems to be developing.
- The pair has been spinning its wheels between 150-151 recently, even as the hawkish repricing in US rates has lost momentum.
- At 4.15-4.35%, long term US yields are more appropriately calibrated for a bumpier disinflation glidepath and 3% growth, than they were at the start of the year.
- Fed fund expectations are not as obviously skewed relative to the Fed’s dots either.
- The “no landing” narrative has legs, but it’s not clear conditions are ripe for either Fed officials or markets to seriously contemplate pricing just -50bp or -25bp in Fed cuts this year.
On the JPY-leg, Q2 BoJ rate hike bets are solidifying, and JPY intervention risk lurks at higher levels.
- There’s surely better value selling USD/JPY into 151 as a short-term trade.
- But we have a hard time seeing USD/JPY trading sustainably lower, say sub-146, due to ongoing structural JPY headwinds.
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Looks like a technical roll over to me, yeah:
