USDJPY: Waiting for a dip to 106.50/107.50 to buy - Westpac

Robert Rennie, Research Analyst at Westpac, notes that today’s BoJ data on domestically licensed banks is an important reminder of why the central bank has had almost no choice but to move to a soft taper.

Key Quotes

“Govt debt to total assets ratio fell to just 8% in November, a level we have not seen since the late 1990s. Banks are clearly running short of the HQLA they require. As this becomes more obvious to the market, then we expect the pace of ¥ depreciation to slow.”

“However, buyers of USD/JPY are focused on the dollar leg with higher US yields and inflation expectations the key driver. We thus remain reluctant buyers, waiting for a dip to 106.50/107.50.”

“Despite the month end data being largely behind us, we still have a reasonable week ahead in Japan with labor cash earnings data on Tuesday and revised GDP, the eco watchers survey and balance of payments data on Thursday. After today’s CAPEX data, it looks like we may see a very modest upward revision from the 0.5%q/q print next week.”