We have closed our short USD/JPY trade recommendation after the target at 138.00 was hit. We recommended a short USD/JPY trade idea last week following the release of the weaker than expected NFP report for June that has helped dampen expectations for multiple further Fed hikes this year. The USD sell-off has extended this week following the release of the weaker US inflation reports (CPI & PPI) for June that have reinforced expectations that the Fed will deliver just one final hike in this cycle later this month before cutting rates next year as inflation moves closer to their target.
The trade recommendation was also intended to benefit from the scaling back of elevated short JPY positions ahead of the BoJ’s upcoming policy meeting on 28th July. Our Tokyo analysts expect the BoJ to tweak YCC policy settings alongside the upward revision the inflation outlook for this year. It could trigger another leg higher for the JPY if the BoJ surprises market participants by tightening policy. Even uncertainty over the policy outcome should encourage speculators to take some risk off the table ahead of the meeting by reducing JPY shorts.
- MUFG Strategy
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