USD/JPY price action may be exaggerated - Westpac

Japan’s GDP growth decelerated in Q3 and the 0.3% q/q, 1.4% y/y headline pace was a little softer than expected but shouldn’t concern the BoJ too much as it keeps its focus on inflation, according to Sean Callow, Research Analyst at Westpac. 

Key Quotes

“Over what has been a mixed week for the US dollar, JPY’s 0.5% gain is second only to the resurgent euro. While US 10 year yields have backed off 2.40% again and risk appetite has softened, USD/JPY price action may be exaggerated by lopsided positioning.”

“Leveraged funds on CME held their largest short yen/ long USD/JPY stance since 2015 at the 7 Nov close (latest data). This places USD/JPY at ongoing risk of position squaring if US yields fall further or risk appetite weakens.”

“Still, markets remain understandably confident about a Fed hike next month and BoJ policy remains generous, limiting downside on USD/JPY. We switch back to neutral on the week.”