fundamental analysis
FX
to analyze what could make more JPY weakness sustainable aſter the usually reactive but oſten short-lived focus (and positioning) from macro and leveraged players, triggered by the trade deficit and BoJ headlines together, has run its course.
Stress testing the Japanese current account
An interesting Nomura piece of research, published well before the JPY weakening move started to accelerate, came to this conclusion:
Bilal Hafeez, global head of foreign-exchange strategy at Deutsche Bank AG
top out around 80.30 this time around, while it is also quite likely that the pair will fail to break above 80”.
Even one of my favourite FX strategist, DB’s Bilal Hafeez (who, it has to be said, has been one of the very few calling for a stronger yen in the USD/ JPY downmove from 90 to 75), has passed on the opportunity of joining a significant trend: “With the recent rally in USD/JPY many are now calling for a major turning point in USD/JPY higher. We are not in that camp. Indeed, we believe the current rally in USD/JPY is almost over, and so our bias therefore would be to look for the right levels to sell, rather than to buy”. Tat was on March 1st
with USD/JPY at 81.
As we write USD/JPY is hovering between 83 and 84, aſter hitting an 11 month high at 84.18 in mid-March, roughly one year aſter the earthquake- tsunami tragedy. It is likely that aſter
FX TRADER MAGAZINE April - June 2012 65
such a quick run USD/JPY could deliver some deeper correction by the time you will be able to read these lines. Still, only a sustained pushback below the 79.50-80.00 area (see Chart 2) would make us declare the current trend aborted. It is more interesting
“Japan reported its first trade deficit in 31 years in 2011. However, the Japanese current account surplus is still looking fairly robust given a persistent income balance surplus. Based on a model of key current account components, our central case is that a surplus of 2.3-2.6% of GDP will be maintained in 2012-13. A current account deficit is likely only in an adverse scenario (by 2015) where
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