Will the JPY free fall continue?
By Kira Iukhtenko, FX BAZOOKA
Japanese yen has extended the downside on Monday with the USD/JPY pair approaching the 102.00 mark – it is highest level since May 2013. The JPY bearish trend looks technically and fundamentally strong and supposes a further depreciation of the currency. RBS economists cite the two most powerful reasons for the USD/JPY upside: market recognition of rising inflation expectations in Japan contrasting with falling inflation expectations in other major economies and a continued deterioration in Japan’s trade balance.
USD/JPY move to 101.85 on Monday has hit the targets on a round of long tactical positions by some banks. The 101.50 level was the target for these positions with Credit Suisse (went long from 100.00) and Commezrbank (went long from 100.12).
As can be seen from the list below, the next targets for the banks long positions lie at 103.00 and even higher:
However, we should keep in mind that on the week ended Nov. 19 JPY short positions surged by 17K contracts to 112K. This is the highest level since July 2007. Such extreme positioning certainly poses a risk for a short squeeze in positioning in the near term.