USDJPY: GO TO SHORT

2023年4月14日

Short USDJPY
Entry: 132.5-133.00
Stoploss: 134.720
Take profit: 122.00

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G10-JPY cross assets interim review: Tokyo market shows endurance versus US, Europe financial jitters, skewing in JPY bond curve to slowly correct
In March and April, JPY basis expanded markedly after the jitters in the US and European banking sectors arose.
JPY swap rates fell after the surprise bankruptcy of a US bank on March 10, before upward pressure on the long end of the curve picked up as the front end declined, resulting in the curvesteepening somewhat.
USDJPY surprised by dipping below the 130-mark on March 24, then recovered to above the threshold. JPY basis is showing that Japanese investors have been avoiding higher funding costs for USD assets. JPY rates declined, but not so dramatically. The skewing in the JGByield curve has started to correct after the credit jitters in the US and Europe.
The JPY nominal effective exchange rate (NEER) has been reflecting a JPY rally amidst the worries about the US and European banking sector(with the post-March 10 US bank bankruptcy JPY weakest at 86.77 on March 10 and strongest at 89.34 on March 27), but the fall by USDJPY was limited.
Tokyo markets have reacted to the credit events in the US and Europe differently from during past financial crises.

Tokyo market structural changes: JPY cross asset flows protect from US, Europe financial risk contagion, ensuring relative stability
Japan logged a current surplus of JPY1.2 trillion (JPY11.5 trillion in 2022), a trade deficit of -JPY22.7 trillion (-JPY15.7 trillion), and an income surplus of JPY34.3 trillion (JPY35.2 trillion) in January and February 2023(annualized), according to international Balance of Payments data. In January and February(annualized figures), Japan’s trade deficit resulted mostly from import (JPY109.5 trillion, JPY114.5 trillion in 2022) growth outpacing exports (JPY86.8 trillion, JPY98.8 trillion). The income balance showed direct investing at JPY22.2 trillion (JPY17.0 trillion) andsecurities investing at JPY47.5 trillion (-JPY19.3 trillion), as overseas assets rose.
In our view, the Japanese overseas account structure reflects 1) strong imports driving a trade deficit; 2) a big income surplus; and 3) very active outward investing flows.
First, while the Chinese Lunar New Year disrupted trade flows particularly in Asia in January and February, the JPY rally was limited as energy resource imports continued intermittently, regular JPY selling flows continued, and credit jitters emerged in the US and European banking sector.
Moreover, the income balance rose, primarily because of income from Japanese investors’ overseas business portfolios, combining with a dividend and interest income for Japanese institutional investors toresult in a current surplus. Japanese institutional investors rebuilt their foreign bond portfolios, especially their US Treasuries holdings, turning from net sellers of foreign bonds by -JPY25 trillion in FY22 to net buyers by JPY11 trillion. Such structural changes in the Tokyo market worked to help prevent the risk contagion from the financial jitters in the US and Europe.