USD/JPY long and short term outlook from banks

USD/JPY dropped to 110.45 on Tuesday. The yen has significantly extended its gains in recent days as geopolitical tensions heat up. Additional support came from the stronger Japan’s trade and current account figures. All-time dovish remarks reported from Bank of Japan Governor Kuroda, who was delivering his speech earlier today and yesterday, were not too big a driver. Governor noted that Japan’s economy continues to recover moderately; the BoJ is determined to maintain its QQE with the yield control for as long as it is needed to hit its long-coveted 2pct target.

Comments from banks

Deutsche Bank

Strategists recommend going long on USD/JPY targeting 114.00 level and entering the trade from 111.20.

The bank’s strategists note that the yen is still expensive on 2-year nominal rate differentials (they point to a fair value of 120 for USD/JPY!).

According to RSI indicator, USD/JPY is at quite extended levels to the downside.

Bank’s CORAX positioning data indicates that USD long positions have been pared significantly in the past months.

Morgan Stanley

Morgan Stanley analysts also suggest buying USD against the yen towards the end of this week.

They recommend buying from 111.30 with a target 115.00 and stop-loss at 110.00.

Their reasoning:

The yen is becoming more and more vulnerable to the changes of interest rate differentials with the BoJ keeping its yield-curve and asset-purchase programs unchanged. The new financial year has started, and Japanese investors might increase their demand for foreign assets.