Dollar/yen has corrected its big gains and then began some kind of consolidation within a slightly lower range.
What’s next for this major pair? The team at Deutsche Bank lists 4 reasons for an upside move to new multi-year highs:
Here is their view, courtesy of eFXnews:
In a note to clients today, Deutsche Bank advises clients to stay long USD/JPY reiterating its view that USD/JPY should gradually trade up to 128 over the course of Q3. DB outlines the following 4 reasons behind this view.
1- “Japanese institutional investors continue to buy foreign assets, and not only on dips. Lifers in particular have ramped up purchases with limited sensitivity to the exchange rate. We think pensions, albeit more sensitive, have lifted their trailing dip-buying level closer to ¥122,” DB argues.
2- “The trade surplus posted in March—the first in four years—proved shortlived, as the trade balance has shifted back into deficit. We expect recent deficits of ¥200bn to narrow only slowly,” DB notes.
3- “Although speculative short positions in JPY remain heavier than before the recent move up to ¥125, a fresh widening of the rate differential should help break that level,” DB adds,
4- “This is likely to be driven by US monetary policy expectations, but the Japanese leg could also help. Our baseline is that inflation well below the 2% target will induce the BoJ to maintain QQE at the current rate well beyond 2015,” DB projects.
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