What would the world be without Tom Stolper FX recos? Very confusing, with no sure money to be made, and without anyone to fade, that's what. Which is why we are happy to bring the Goldman muppet slayer's latest FX "recommendation" In short: "We recommend going short $/JPY at current levels of about 97.30 for a tactical target of 94.00, with a stop on a close above 98.80." In even shorter: Goldman is now buying USDJPY from its clients.
Go tactically short $/JPY on less proactive stimulus in Japan and narrowing rate differentials
While we believe that $/JPY will ultimately move higher on growing interest rate differentials and more stimulative policies in Japan, the near-term risks have increased, as we discussed in our latest FX Views published yesterday. On a tactical basis, these risks could push $/JPY temporarily lower first.
This week the Japanese government decided to go ahead with the sales tax increase at the beginning of the next fiscal year. The additional fiscal package pre-announced at the same time aims at alleviating only part of the negative impact from the VAT hike, according to our Japan Economics team. The BoJ meeting this week is unlikely to lead to any further stimulus either. Our Japan economists expect the next BoJ easing to roughly coincide with the implementation of the sales tax increase in April next year. With short positioning in JPY still very stretched, these policy announcements remove some catalysts to hold on to JPY-bearish positions.
On the rate differentials side, at the last FOMC press conference, Chairman Bernanke made explicit reference to fiscal tensions as a factor for delaying the widely expected tapering announcement and for the strengthening of the forward guidance. Rates have rallied since and continue to be under downside pressure. Uncertainty about the fiscal outlook in the US will likely maintain this downside pressure for now.
The combination of less favourable rate differentials, less proactive stimulus policies in Japan (at least for now) and continued short JPY positioning suggests the near-term risks to $/JPY have become more skewed towards the downside. We recommend going short $/JPY at current levels of about 97.30 for a tactical target of 94.00, with a stop on a close above 98.80.
The only question we have: will the length of time before Stolper is once again Stolpered out be measured in days, or hours?