A long USD-JPY recommendation has been initiated at 117.50 on 1 December 2014, based on two key themes:
- (1) monetary policy divergence
- (2) an increasing trend of Japanese investor outflows
According to Barclays, monetary policy divergence would be a key driver of USD-JPY in H1 2015 as markets began to price in the prospect of the first FOMC rate hikes, while the Bank of Japan (BoJ) added further monetary stimulus amid a lack of progress on reaching its inflation target.
The FOMC has not raised rates yet, but given the recent improvement in US economic data after a soft Q1, the first hike is expected in September. Inflation in Japan continues to fall well short of the BoJ's 2.0% target, and analysts expect further quantitative easing from the BoJ in H2-2015, says Barclays. In addition, Japanese investors have been net buyers of foreign stocks and bonds in every week of 2015 except one. These outflows have provided key support to USD-JPY, even when the US dollar (USD) was correcting in April and May.
