“The USD/JPY is losing momentum…
As a first correction risk, we are monitoring any unwinding of speculative USD longs driven by the USD/JPY rally. We think the USD/JPY will likely rise quickly to 115-118 level, and estimate that Japanese real-demand traders can be cautious about buying an expensive USD. It is difficult to claim that support for the USD/JPY at the high-110s of firm.
Second, there is still uncertainty concerning the Trump’s policies. If Mr. Trump again emphasizes his public commitments including tax cuts at his first press conference today after the election, this will likely be viewed as USD-bullish. His reference to capping USD appreciation might trigger a correction.
Third, we see a risk that a relatively slow economy before Trump can deliver his policies could stall the USD/JPY. The latest market forecast for US economic growth for 4Q to be released on 27 January is 2.0% YoY, but our economist points out that growth may have slowed to around 1%.
Fourth, although there may not be a crisis right now, we need to bear in mind the presence of risk-off factors other than in the US. Economic, market, and political conditions in China, other EMs and Europe, as well as geopolitical risk including in East Asia, are greater factors for concern than in 2016..
We think the USD/JPY uptrend toward 125 will be maintained, and see a prime opportunity to buy on decline. We have seen there could be a correction to 115-110 zone in the first some months of 2017, but we found support at 115 firmer than expected. We think some market participants could start to unwind remaining USD shorts on buying on decline at about 115″.
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