USD/JPY heading higher towards 112 - Natixis

Research Team at Natixis, notes that the Japanese yen is the currency that has weakened most against the US dollar as the keener risk appetite has encouraged speculative accounts to square their long positions on the yen (11 thousand contracts squared), helping to fuel the yen’s technical correction.

Key Quotes

“As long positions held by speculative accounts remain significant (around 32 thousand contracts), this suggests that the USD/JPY still has some upside, particularly if, as we anticipate, the Federal Reserve continues to tighten monetary policy in 2017.”

“Furthermore, the upturn in US long interest rates is likely to trigger capital outflows, especially if the Japanese 10-year rate is capped at zero percent. In the week ending, the Bank of Japan intervened on the Japanese yield curve to prevent long rates from passing above zero percent, as it had promised to do at the meeting held on 21 September.”

“Under these conditions, our next short-term objective for the USD/JPY is 112, after which we see the pair extending its rise over coming months.”