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In terms of USD/JPY most forecasters are bullish and speculators hold a record-long position so is it a "one-way bet" to the upside? We dont think so and think the risk v expected payout is excellent on a potential fall is excellent logic of our view below:

“On balance, we see USD/JPY as holding around the 160 level on a 1-month view with USD/JPY easing back to 152 by year-end on the view that real wages will by then also be showing signs of improvement.The US Dollar (USD) could remain on the back foot in the coming weeks allowing USD/JPY to hold close to 160. Later in the year, we are looking for the JPY to win back some ground based on the assumption that a recovery in Japanese real wages will allow for a more hawkish BoJ.” (RABOBANK)

The above is a typical view no big move down yet but maybe later in the year, however, speculators hold a record-long position and view the USD as a "one-way bet to the upside" – when it looks like there is no reason for a currency to mount a major trend change it very often does.

 

Interest Rate Differentials

Of course interest rate differentials clearly in favor of the USD but USD/JPY has overshot them as we can see on the charts below and we also have the JGB bond moving higher.

jyen1

jyen2

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As JGB bonds move higher we are seeing less buying of US bonds could we see more money invested in Japan and taken out of the US Bond market?We think this could happen. Our view is the Bank of Japan will raise interest rates sooner than the market expects and trigger a major JPY rally.

jyen4

Sentiment - Bullish Extreme COT Net Traders Positions 

If we look at the COT Net Traders Positions we can see that off the last record long we did mount a rally while it was not sustained the move was decent to the upside and we are now at another record long so expect a major bounce in the JPY.

cotbase japanese yen futures cot net positions 8

Also in terms of speculative positioning, we have trend following CTA's holding a major short position - if this group start to exit and reverse we will see big downside volatility in USD/JPY

ctaselljpyjpy

Technical Analysis

Our view of the key levels of support and resistance to key off are on the chart below.

USDJPYDAY09

 

 

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