Westpac thinks, “Is there a short-term opportunity for the yen amid long-term headwinds?”
To summarize from my notes:
A textbook case of a rapid USD/JPY reversal appears to be developing.
- The pair has been rotating between 150 and 151 recently, even though the hawkish re-pricing of US interest rates has lost momentum.
- US long-term yields of 4.15% to 4.35% are better aligned for an even more volatile inflation-easing glide path and 3% growth than they were at the beginning of the year.
- Federal funds expectations are also less obviously distorted than the Fed’s.
- The “no-landing” narrative has some basis, but it’s not clear whether conditions are ripe for Fed officials or the market to seriously consider cutting Fed rates to just -50 basis points or -25 basis points this year.
On the yen leg, the outlook for the Bank of Japan’s interest rate hike in the second quarter is solidifying, and the risk of yen intervention remains at a higher level.
- There is definitely better value selling USD/JPY down to 151 yen as a short-term trade.
- However, as the yen continues to face structural headwinds, we believe it will be difficult for the USD/JPY to depreciate sustainably, for example below 146 yen.
—
Looks like a technical rollover to me, yeah:
