Dollar/yen enjoyed a relief from North Korean tensions and moved higher, despite an excellent GDP report from Japan. What’s next?
Here is their view, courtesy of eFXnews:
Bank of America Merrill Lynch FX Strategy Research makes an interesting argument about JPY price action and North Korea tension-related risks.
“Japanese investors have been buying foreign securities over the past several weeks, and de-risking or repatriation by Japanese investors has not materialized yet, in our view. CFTC’s IMM statistics show short positioning in JPY.
Hence, further escalation of the North Korean tension could extend the JPY strength. Meanwhile, emergence of realistic risk of a military conflict could lead to rising JPY selling pressure.
“The North Korea risk is different from a natural disaster (2011 quake). Japan‘s national security environment is likely to deteriorate rapidly. Sentiment among Japanese who have not experienced any military conflict in the post WWII era could turn even more negative than at the time of the 2011 earthquake.
So, while we are not certain when or if the situation should improve or worsen, “one-sided JPY strength pressure“ may not last forever or extend much beyond this year‘s high (108s),” BofAML argues.
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