Dollar move above 150 vs yen encourages profit-taking
Dip-buying USD/JPY still has some shelf life.
The yen firmed Friday amid profit-taking above 150 and after an obligatory warning from Japan's top currency diplomat, Atsushi Mimura, about excessive volatility.
Mimura noted that markets are becoming “somewhat” one-sided. To his point, speculative accounts have been building USD/JPY longs since it topped 147 and, more recently, spot gains have outpaced changes in U.S.-Japan yield differentials. There has also been ongoing buying of longer-dated USD/JPY options betting the yen will weaken in the new year.
But there is only scant evidence that the yen’s slide the past few weeks is due to excessive betting against the Japanese currency or a repeat of carry-related selling seen earlier this year. Positioning in yen futures remains modest and short-dated yen volatility has been falling for about 10 days.
Traders note a rise in carry-linked activity as risk appetite improves but the yen is not the optimal funding currency when central banks outside Japan are cutting.
With sentiment remaining USD bullish through U.S. elections, traders may prefer dip buying the greenback until the Ichimoku cloud top is tested, currently at 151.04. Bracketing the cloud top are the 100-day moving average at 150.83 and 200-day average at 151.37 while solid support is seen near the conversion line of 148.83.
This strategy may change if spot breaches the key 152 level, causing volatility and intervention warnings to rise, or BOJ officials, eyeing the weaker yen, become more vocal about hiking policy rates in coming sessions.
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Yen chart https://tmsnrt.rs/4eMuD6p
(Robert Fullem is a Reuters market analyst. The views expressed are his own.)
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