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Deutsche Bank:

USD/JPY bulls should lay low for now

 

USD/JPY near bottom of projected range, but too early for dip buying
The USD/JPY has fallen to the ¥108 level, its lowest point after the Trump rally.
We had seen this as the low end of the range in the present correction phase, but feel it is still too early to recommend buying on weakness.

While the US Treasury Department’s latest currency report (“Foreign Exchange Policies of Major Trading Partners of the US”) includes Japan in its Monitoring List, this was as expected. However, we believe the geopolitical risk in East Asia will continue for now. We suspect that market participants will be hesitant to maintain or build USD/JPY long positions ahead of political events this week, including the start of the US-Japan economic dialogue on Tuesday and the meeting of G20 finance ministers and central bankers on 20-21 April. Talks between the Trump administration and Congress over the US debt ceiling, which have a deadline of 28 April, may also affect expectations regarding the feasibility of government policy. Additionally, the growing uncertainty over the French presidential election on 23 April, now a four-person race, has made the markets cautious. The plunge in the EUR/JPY and drop in yields on safe-haven USTs is said similarly to be encouraging the USD/JPY decline.

Additionally, the growing uncertainty over the French presidential election on 23 April, now a four-person race, has made the markets cautious. The plunge in the EUR/JPY and drop in yields on safe-haven USTs is said similarly to be encouraging the USD/JPY decline.

We believe Japanese institutional investors will hold back from becoming active buyers of foreign securities with their new fiscal-year allocations in the face of these various risks, maintaining a wait-and-see stance for now. At the same time, many importers are thought to have set their internal USD/JPY rates for the new fiscal year at around ¥105, and any hedge-selling by them above this level may put pressure on the rate.

In any case, we do not see a panic situation connected with East Asian geopolitical risk as a main scenario. We suspect that the US will refrain from taking a more radical stance in its trade and currency discussions with China and Japan given the geopolitical risk in the region. We expect a modest comeback in the USD/JPY on an unwinding of short positions if the next two weeks pass without any serious negative surprise in these risk factors. The first impetus for a return to the ¥110 level could be a rebound in US payroll data for April on 5 May.

Marketing communication : This document has not been developed in accordance with legal requirements designed to promote the independence of investment research and its author(s) is/are not subject to any prohibition on dealing in the relevant financial instrument ahead of the dissemination of the marketing communication.

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