USD/JPY is a buy on dips in the current environment - SocGen

Kit Juckes, Research Analyst at Societe Generale, notes that the USD/JPY reached its highest level since March 15, when it traded above 114 and by co-incidence, 10year TIPS also reached their highest yield levels since March 15, when they traded at 46bp.

Key Quotes

“They’re at 44bp now. A neat and tidy co-indicdence but one which reinforces the importance of real yields as the main driver of FX moves at the moment,. FX is the tail and TIPS are the dog.”

“USD/JPY will follow US real yields as long as Japanese ones don’t rise faster and as long as global risk sentiment holds up – which really means as long as equity markets don’t go into reverse. The FT tells me that this is the 112th consecutive rise in the TOPIX, the best run since June 2015, the third 11-day rise in the last three decades and the tenth since 1949. Maybe the rarity of bull runs of this length makes a correction in both equities and FX more likely than not at some point soon but at the very least, USD/JPY is a buy on dips in the environment. Our target is 120 next year, but our 114 forecast for March could be reached a week after we revised it. If this move continues at the recent pace the whole 2017 USD rally might have been done by the time 2017 even begins.”