Reduced allure of the CHF should pressure USDJPY lower - TDS

Mazen Issa, Senior FX Strategist at TDS, suggests that for now, the reduced allure of the CHF should pressure USDJPY lower.

Key Quotes

“Both regions run significant net IIP surplus positions. The JPY is a deeper and more liquid market, however, whose net IIP has grown relative to the Swiss as pensions increased foreign equity exposure last year. Additionally, with the Japanese investors running large foreign exposure (with lower hedge ratios), we are wary that they may view relief rallies as opportunities for risk reduction, and thus repatriate adding more pressure on USDJPY.

We acknowledge that yentervention risk is growing, but we reckon that the 'secret' meetings among Abe, Aso, and Kuroda may be more political theater than a greenlight to step in to halt currency strength. For this to be remotely successful, we think intervention must be multilateral as anything less raises a real danger of policy failure. Moreover, there appears to be little to no appetite from G7 support for yentervention (especially from the US Treasury Secretary), as the Japanese have long been criticized for competitive devaluations. We rather think that USDJPY can reach 95 without yentervention.”