Date: 10 Apr 2018

Data last Friday from the US Commodity Futures Trading Commission (CFTC) for the week ending April 3 showed a net long yen position of 3,572 contracts, equivalent to some USD0.4 billion. As Japan’s Mitsubishi UFJ Morgan Stanley (MUMS) noted “this was the first time non-commercial traders had gone net long on the yen in roughly 17 months, dating back to 22 November 2016. [MUMS takes] this development as a sign that speculators have fully rejected their previous scenario (that the yen would weaken further vs. the dollar as the spread between US and Japan yields widened) and have instead begun embracing prospects of further yen appreciation.” But MUMS’ view is that while the long-standing CFTC net short yen position has finally been flushed out, those who are now trying the play from the long yen side haven’t, at least as yet, had too much success but are still having to bear the negative position carry costs of the position.

The Tokyo-based firm’s view therefore is that far from dollar/yen (USDJPY) being at risk of falling, the stars may be aligning for it to rise. Naohiko Miyata, MUMS’ chief technical analyst takes the view that “Over the past 10 years, the USD/JPY hit a bottom once every 47 weeks on average. On 26 March, the USD/JPY briefly touched 104.56, the strongest that the yen has been against the dollar since 9 November 2016 (the day that markets began to rally after Trump’s presidential election victory). This week marked the 49th week (or 48 full weeks) since 17 April 2017 (when the USD/JPY was at 108.13), making it highly possible that the USD/JPY has already marked a bottom in the roughly 47-week cycle.” Traders will have their own views but MUMS “would not be surprised if the USD/JPY tested 110 within the next three months.”

Written by Neal Kimberley, External Currency Analyst.