ANZ Analysis: Long JPY Positions - Historical Patterns and Economic Challenges

ANZ's Cautious Advice on Long JPY Positions

ANZ expresses hesitance in taking long positions on the Japanese Yen despite potential moderation in USD/JPY gains following the Bank of Japan rate hike in March. The bank compares the current BoJ's cautious approach and uncertain outlook for future rate hikes to its stance in 2006 and 2007, noting parallels in messaging and subsequent JPY underperformance.

Key Points:

• Historical Context: The BoJ's historical tendency to maintain very low interest rates for extended periods post-hike has led to periods of JPY underperformance.
• Economic Challenges: Japan's economic outlook continues to pose challenges, with consumption acting as a drag on GDP and manufacturing still in contraction territory.
• JPY Weakness Correlation: Since the COVID-19 pandemic, the JPY's weakness has often been associated with a divergence between export volumes and values, highlighting external factors' significant impact on the currency.
• Short-Term Outlook: While some moderation in USD/JPY gains might be expected following the BoJ's meeting, ANZ advises against adopting long JPY positions.

Conclusion: ANZ's analysis advises caution in taking long positions on the JPY, citing historical precedents of BoJ policy impacts, ongoing economic challenges, and the currency's sensitivity to global trade dynamics. The advisory reflects a cautious outlook on the JPY's performance in the near term, even in the face of potential policy tightening by the BoJ.