The view is a long-term one, looking to buy one year puts on USD/JPY
Various factors MS mention:
Says USD has been supported by:
- USD repatriation flows
- Foreign buying of USD assets
But now diminishing.
US equity market experiencing a rotation from cyclical into defensive shares,
shows a similar behaviour as in August/September 2018, just before indices declined by about 20%.
- The only difference is that US bond yields are now lower compared to September, but bond volatility is higher.
Says yen remains the most sensitive currency to higher US bond volatility, and:
- Japanese MPs passed (Wednesday) a record-breaking fiscal 2019 budget that includes JPY2.03trn in measures aimed at softening the impact of a looming consumption tax hike on an economy that is already facing broader uncertainty.
- Nonetheless, the 10-year JGB bond yield has declined to its lowest level since September 2016.
- It was in 2016 when USDJPY fell from 121 to 100.
