Morgan Stanley are drooling over another long USDJPY trade. On their last outing they went long at 112.50 looking for 120.00 but bailed at 113.12. (a good profit in anyone's book).
This week they write the recent falls off as increased Japanese hedging.
"Buying the USDJPY dip. A deeper dive into the JPY shows Japan has turned FX risk averse Hedging activity has been the driver of JPY strength. However, US interest rates should increase over time, suggesting higher hedging costs. Once we see inflows into JPY-denominated money markets slowing, the JPY is likely to fall. We suggest buying USDJPY on the dip to 109.50."
Further on they go into greater detail and do a fine job of explaining the mechanics behind Japanese hedging.
Morgan's are looking to buy USDJPY at 109.50 with a 118.00 target and 108.20 stop.
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