USD/JPY neutral to bearish perspective - Scotiabank

Eric Theoret, Strategist at Scotiabank, notes that the likelihood of another BoJ disappointment is climbing ahead of the Sept 21 decision, putting upside risk to the near-term path for JPY.

Key Quotes

“JPY is outperforming nearly all of the G10 currencies with a gain of 0.5%, rising in response to local media rumors of discord among policymakers at the BoJ. Gov. Kuroda is said to favor lowering interest rates further into negative territory and Dep. Gov. Iwata is said to favor an expansion in the monetary base. Board members Kiuchi and Sato are said to oppose any further easing.”

“Risk is elevated heading into the September 21 policy decision, given that messaging following the most recent July 29 meeting (and disappointment) had put a heavy emphasis on a comprehensive review that was intended to help formulate the policy outlook into September. The likelihood of another BoJ disappointment is climbing, putting upside risk to the near-term path for JPY. Risk reversals are responding accordingly, pricing a greater premium for protection against JPY strength.” 

“USDJPY short-term technicals: neutral-bearish—USDJPY has dropped back below its 50 day MA, momentum signals have turned, and the RSI is now below 50. DMI’s are providing confirmation to the shift in the balance of risk and USDJPY is attempting a clear break below the 21 day MA.”