Deutsche Bank: USD/JPY has bullish potential
USD/JPY enjoys a strong rally, hitting the highest level since the year 2002 (124.30 area). Despite the resistance ahead, analysts at Deutsche Bank recommend staying long on the pair. They are citing four fundamental reasons for more upside:
1) Trade balance. Japan trade balance turned back to surplus in March, but dipped back into the red zone in April. Deutsche Bank sees risk for the trade deficit to stay because of the oil market recovery.
2) Outflows. “While foreign interest in Japanese securities cooled in the first months of the year, Japanese investors expanded their purchases of foreign assets in Q1, with weekly flows in April and May suggesting they are holding up well”, analysts say.
3) Monetary policy. The US Fed is widely expected to hike rates in 2015, while the Bank of Japan remains clearly dovish. Rate divergence will increase.
4) Light positioning makes USD/JPY more responsive to widening real rates than in the year 2014. Real money was ready to buy USD/JPY at 119.00. We see the first resistance around 125.00 yen.
Trade idea: Buy USD/JPY on dips with a 125-128.00 target in 2015 and 130.00 in 2016.