JPY Trading Outlook (27-10-2014)

USD/JPY Financial market anxiety, the VIX for instance, might not be back down at sleepy lows seen over the summer, but they have retreated about two-thirds of the way from the recent peak toward the summer trough; a move that has been mimicked by the USD/JPY’s retracement of Oct’s 110.09-105.20 trading range. That USD/JPY never retreated as much as the VIX climbed from its summer lows shows how demand for US assets, from inside and outside of Japan, persists. The same can’t be said for EUR/JPY, which got well below its 135.75 summer lows last week and has struggled to retake 137 with this week’s broad rebound in risk. Flow data show Japanese investors have been exiting EUR trades (mostly OATs) in favor of Tsys this yr as the EUR govt debt yields tumbled, in some case even below Tsys yields. The ECB’s negative depo rate is forcing money out of EUR reserves, while the BOJ’s QQE, negative Trade balance and need for returns above what JGBs offer make the yen a short, all else being equal. USD/JPY’s rally and close above 107.64, Kijun & 50% Fibo resistance Thur give that pair a bullish, S-T technical bias. AQR Sunday is next risk.