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.
“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.”