Long USD/JPY Has Become A Consensus Trade‏

The number of long USD/JPY contracts doubled to 37k contracts from earlier 18.2k. Net shorts in respect of open interest have risen from 13.3% to currently 25.2%. The build in short JPY positions came in a week where it became increasingly clear that the Japanese economy is in recession and that Bank of Japan (BoJ) will step up its easing measures.

On 30 October BoJ said it will expand its target for its asset purchase programme further by JPY11trn to JPY66trn. In our view monetary policy in Japan is now being eased relatively aggressively with the current pace of asset purchases close to 8% of GDP on an annual basis. We expect the target for asset purchases to be expanded further to make room for BoJ to maintain this pace of asset purchases next year. Given the more aggressive policy we think there is room for more short JPY positions despite the latest moves showing that speculative investors have not been this bearish JPY since May this year.

Sterling on the other hand continues to attract investor interest with the number of long GBP positions against USD rising from 11.8% to 14.3% during the week. The market is focusing on the upcoming Bank of England meeting where more and more analysts, including ourselves, look for a pause in the quantitative easing programme.

Finally, speculative investors added slightly to short EUR positions last week. It probably reflects the growing concerns about Greece and Spain that seems very reluctant to ask for help from the ECB's OMT programme.

All in all aggregate short USD positions fell from USD 10.5bn to USD 6.9bn. We see a clear possibility that further long USD positions will be added over the coming weeks as the so-called fiscal cliff is moving closer.

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