G10: Short USDJPY
Rationale: We expect BOJ to disappoint with no easing this week, no interest rate cut, and no change to policy. Rate markets are already pricing rather substantial bear steepening which might not be delivered as aggressively through forward guidance – leading to front-end USDJPY rate differentials narrowing. Even a positive assessment in the September review might not be enough to match market expectations for something bolder and more committed to future easing. Meanwhile we expect the Fed to hold and our US economists forecast no hike until May 2017. The main risk to this trade is that BOJ delivers enough to keep markets appeased for the short-term, but even then we think scope for USDJPY to rise is limited.