Here Is Why USD/JPY Big Upside Move Is Already Behind Us - Nomura

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Over the last three months, Nomura's FX trading has been focused on yen weakness. Nomura's core view has been that ongoing political changes would generate a strong push for a ‘New BoJ’ and that this would feed into substantial yen weakness.

That scenario has been largely materialized and the yen is now 12% weaker both versus the dollar and on a trade-weighted basis over a short three-month period which overall amounts to one of the largest yen depreciation moves of the past 20 years.

Thus, Nomura now believes that it is time to book some profits on Long USD/JPY exposure as the big upside move in the pair is already behind us. Nomura outlines 3 main reasons behind this call.

First, achieving a 2% inflation target is now priced with a meaningful probability (near 50%), and actually achieving it will certainly not be easy.

Second, the catalyst from higher US rates is likely to fade in our view (Nomura regards the recent push higher in the 10Y rate as temporary).

Third, some Japanese policy makers have expressed comfort with the 85-90 range for USD/JPY, and we are now close to the upper end.

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