A BOJ Currency Play

Focus: FOREX

Recent political developments in Japan calling for snap elections, plus the Bank of Japan’s announcement of further easing, have made the USD/JPY pair dominant in recent trading. Here, the Staff at FXStreet.com detail Nomura’s position.

The Nomura FX Strategy team have taken a look at the political situation in Japan with the view to taking a position.

They note that since the IMF/World Bank meetings in October there has been potential for yen weakening, driven by expectations of a 'new BoJ' following the end of current Governor Shirakawa's term in April.

They now think that the new BOJ trade is clearly on. Over the last two days the trade has gotten momentum. First, on Wednesday morning USD/JPY jumped from the news that elections will be held relatively quickly, breaking 80. Second, Thursday morning from comments from the likely new Prime Minister Abe that the inflation target should be 2% to 3%, and that unlimited BOJ easing was warranted.

The yen moved sharply higher from 79.30 to 81.20 in two short sessions in a departure from a range-bound yen seen in 77 and 80. Moreover, they note that USD/JPY has decoupled from rate spreads, and they have seen a significant spike in volume.

They feel that the move in USD/JPY is consistent with their forecasts and current trading strategy, but is unfolding at the early end of expectations.