Dips in USD/JPY are seen as buying opportunities – Westpac

Strategists at Westpac noted the pair’s stance remains a ‘buy on dips’ for the time being.

Key Quotes

“We have been looking to buy USD/JPY into 110/111 for a while now. The USD and risk sentiment should be the main drivers going forward. The latest developments in US politics have shaken the USD somewhat but we see this as an opportunity to buy. With more Fed officials sounding convinced about hiking three times this year, we should see the USD stabilise. Meanwhile, the BoJ sounded more positive in the last quarterly Outlook Report but are unlikely to change policy soon. Indeed, yields on 10yr JGBs appear capped as the BoJ keeps them “around zero percent”. This rate differential should be supportive of USD/JPY too”.

“Japan’s President Abe is to visit the US on Friday for a long weekend of summits with President Trump. Press reports suggest Abe will highlight existing Japanese investments in US, which already contribute to US exports and US domestic employment. Abe may add to the mix with potential investments into infrastructure through investment loans/funds/bonds or directly in projects (e.g. high speed rail) as well as trade/export credits. That could neutralise any USD/JPY downside that might otherwise be seen if President Trump talks / tweets about JPY "manipulation".

“The turn against Trump Trades has not unwound the whole of USD/JPY’s post-election rally but it has met a standard retracement of the move seen since mid-2016. Technically USD/JPY has found support but erratic price in some pairs warrants caution and as such we prefer to buy USD/JPY on a dip”.