Wednesday, September 30, 2015

Stay long USD/JPY ahead of Tankan – Deutsche Bank

FXStreet (Delhi) – Robin Winkler, Strategist at Deutsche Bank, suggests to long USD/JPY pair as even a marginal decline in TANKAN' inflation expectations could trigger a dovish step change in the BoJ’s policy stance and a rebuilding of speculative shorts over growing BoJ event risk in October could lift USD/JPY well above the September highs.

Key Quotes

“Kuroda and other BoJ policy-makers have argued that inflation expectations, and thus trend inflation, should be unaffected by transiently low energy prices. Falling core CPI—turning negative in August--has thus been seen as less important than core-core inflation. If inflation expectations dipped in Q3, however, this would be strong evidence that energy prices are dragging on trend inflation after all. As a result, the BoJ’s optimism on reaching the 2% inflation target in the first half of 2016 would appear increasingly complacent.”

“Last October, it was a concern over declining inflation expectation—at the time 1.7% for five years--that led BoJ to expand QQE. As the minutes noted, slippery inflation expectations are particularly problematic as corporates approach into year-end wage negotiations. The seasonal pattern to the transmission from inflation expectations to wages could therefore be an incentive for the BoJ to take steps to re-anchor inflation expectations rather sooner than later. Stay long USD/JPY.”
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