Politics is set to take centre stage in Japan in coming months with several important events ahead. Given the economic and political situation and, not least, this year's surge in the JPY, we think the Japanese government will announce a fiscal stimulus package before end-May.
We expect the Bank of Japan to cut its policy rate by 20bp to -0.3% in July and to announce additional qualitative measures including a scale up of ETF purchases and a maturity extension of its government purchases.
We expect the combination of fiscal easing and monetary easing to lift USD/JPY back into the 112-117 range. We target USD/JPY at 115 in 3M and 116 in 6-12M.
We recommend investors gradually build up long USDJPY positions. We think 3M USD/JPY seagulls offer attractive risk/reward. We recommend EUR- and DKK-based corporates with JPY receivables hedge FX forwards or risk reversals.
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