BAML: #1Thing:  The other JPY move

From the FXWW Chatroom: USD/JPY spot has provided the talk so far this week, opening 113.14 to low 111.35 then bouncing to 113.34 and today 112.06-112.96 – that’s almost 600 points thus far, and we continue to see topside optionality interests. BofAML’s APAC chief G10 spot trader, Tomofumi Makita, will be trading the 111.50-113.50 range nimbly for now with a continued bias to buy dips or a clean break above. Our Research sees 120 for next year with upside risk on technicals. Also interesting been the recent JPY Basis moves highlighted by BofAML’s STIRT trader Tokumori Sasada, driven by strong local USD demand especially as we head towards year-end. As US and Foreign yields rise while Japanese yields stay anchored, we expect foreign bonds to remain attractive (unhedged basis or even at high funding cost). Local flows over the year-end-turn now has Dec/Jan JPY basis trading at -730 BP (5day) implied annualized. The related fx points move (LHS) also suggests it is increasingly expensive to roll any Short USDJPY positions – on the margin, this contributes to the higher USD/JPY bias as well.

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