Forex Flash: Seasonal risks suggest JPY strength over next months – TD Securities

Investors are reacting to signs of open disagreement between PM Abe and Finance Minister Aso over the way forward for monetary policy and even who the next BoJ governor will be, making the JPY the top performer of the G10 currencies. Also, according to South Korean officials, although Japan was not singled out at the weekend G20 meeting, Japan’s policies were not endorsed by the group and did prompt some controversy. 

“All this highlights a point we have made a number of times recently—there is a lot of bad news priced into the JPY at current levels", wrote analysts Shaun Osborne and Greg Moore. "Markets have accepted that Japan will ease monetary policy aggressively to achieve its aims even policy has often fallen short of objectives in the past", they added.

"Developments in the past few days highlight also that a) there are internal rifts on the policy approach and b) there may be external constraints on what sort of easing measures Japan’s partners will deem acceptable", concluded the TD Securities analysts, adding that seasonal risks suggest that the February-April period of the year often sees the JPY perform strongly, and that Japanese exporters will look on current levels as great hedging opportunities relative to their internal break even rates.

"We spot key support at 92.28 on the short-term chart—the neckline of a minor H&S top formation that its currently under construction", they said, pointing to potential of a 200-pip drop in case of a break lower, also putting in question the broader USD/JPY uptrend.