The elections are only one reason
- We can expect Abe and friends are steaming ahead to a 2/3 majority as many polls indicate
- BOJ officials continuously confirm the Central bank will be the last standing with YCC , ETF buying and powerful easing , Sakurai the latest o/n
- USDJPY is keeping a bid tone as yield curve bear flattens
- Risk is relatively improving,as diplomacy seems to be preferred in the Korean peninsula (for now at least)
- Fed candidates are less dovish than we may have expected from the Trump admin when taking office
- Trump admin is still raving about the biggest Tax Cuts in history
- Japan Post office will shift into riskier assets, equities will be the main area of focus but the move into foreign bonds has also picked up.
- The energy bill is rising with higher energy prices and seen the reliance on energy imports is at risk of rising even more.
Japan Kansai Electric is to shut down 2 nuclear reactors, a lot of Japan’s nuclear park is aging and the safety update costs are running higher than shutting them down.
- Insurer AIOI Nissay Dowa increased unhedged foreign bond buying in H1 and expects to continue into H2 of this fiscal year. This company is not of the biggest but is an example
of what may be going on in the minds of the Japanese wales ,such as Japanese Post , Nippon Life etc. buying unhedged or taking of hedges would have a major JPY selling impact in the process
- Risk? Well sadly war… Although I discussed before that I don’t see a reason to buy JPY in such a dramatic situation as Japan would be directly involved in the conflict. I expect fleeing cash to largely overplay possible repatriation for reconstructions if needed. Don’t forget Japan is already sitting on a large cash pile.
- JPY shorts have a positive carry vs most.
There are possibilities of positioning for this. Typical risk on crosses would underpin EURJPY, AUDJPY , 2 preferred investments of Japanese accounts. But for the time being I chose to be tactically long
USDJPY. I was already a bit long as part of a long USD play , together with the USDCHF. I added today 112.65/70 area, bringing the average long around 112.45. Keeping in mind the geopolitical risks, I am not full steam, blindly long of this and keeping the stop sensible in case of geopolitics and or negative investor news in regards to the foreign bond holdings.Therefor I will leave the ship if 111.65 breaks. If this plan plays out in turn,I look for intermediate resistances to give way and will reassess at 114.40/50 , May and July highs .I will job inside 112.20-113.20 in the meantime.