JPY Bears Prepare For Bank Of Japan‏ Decision

Investors made an outright turnaround on the yen last week , turning from net bullish to net bearish, leading up to this week's Bank of Japan (BoJ) meeting. At the meeting, we look for the BoJ to increase its asset-purchase programme by JPY10trn to JPY65trn, which seems to be widely expected in the market. We still target USD/JPY at 83 on a 12M horizon but see the potential for this week's BoJ meeting to steer the yen lower as fairly limited - not least considering the latest turn in positioning.

The opposite U-turn to that of the yen was seen for CHF where speculators turned net bullish on the CHF over the past week. The CHF has continued to trade around the 1.21 level since the early September uptick induced by the ECB move. The SNB's 1.20 minimum target is likely to stay in place for now but should Spain give in and ask for ECB assistance, this may cut safe-haven flows to Switzerland and weigh on the Swissie, thus making the work of the SNB even easier in helping EUR/CHF to move higher still.

Euro short bets were unwound only to a very limited extent last week and the scope for EUR upside from positioning thus remains intact compared with last week. However, the "easy move" higher in EUR/USD is likely to be behind us and we will probably have to wait for Spain to ask for ECB assistance before the next sustained uptick can be made.

Bullish commodity bets were cut last week as investors shed oil, gold and copper alike: indeed, we have yet to see the leg higher in prices that we have been calling for in H2. Commodities are still waiting for firmer confirmation that China is stabilising as well as more sustained dollar weakness. Our fair-value models however underline that fundamentals have improved in recent months and we see a floor for Brent oil around USD100 per barrel.

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