USD/JPY: The Signal From JPY And Equities Link Favors Downside; Staying Short - TD

TD FX Strategy Research discusses USD/JPY 'important' link with equities markets are important. 

"The link between the JPY and equities is not a push to safe havens but instead a pull of money back home...Foreign investors have been big buyers of Japanese equities.

The past five weeks have seen a $39bln inflow of foreign buying, potentially weakening the correlation of USDJPY to the NKY. The past we saw foreigners cut their equity holdings by $9bln and the rise in the two-ways risks favors more downside in USDJPY. 

Further disappointments on US tax reform could challenge the S&P, taking USDJPY with it," TD argues. 

In line with this view, TD maintains a short USD/JPY* position targeting 107, with a stop at 114.80.

Source: TD Securities Research