JPY Trading Outlook (04-11-2014)

USD/JPY The shock and awe of the BOJ’s QQE2 on Friday carried over into the new week, despite, or perhaps partly because of, the Japanese holiday Monday. The mkt was caught paring its spec short yen trades the previous week and short gamma and trying to chase USD/JPY and crosses higher. The 114 barrier was taken out after an above-f/c US ISM report, but Markit PMI and Construction Spending missed to the downside and there was a tinge of risk reduction to limit follow-through above 114.00. The 114.21 intraday high cleared the 76.4% of the ’07-’11 collapse at 112.62, as well as the top of the ascending channel off the ’13 & ’14 lows at 113.72. Short of another bout of nasty financial market volatility to force some covering of yen-funded trades, the focus is for a quick advance to 115 and perhaps a pause by the Nov ’07 swing high at 117.95. Attention will shift to BOJ/MOF flow reports for signs of GPIF reallocations accelerating the exodus from JGBs into equities (domestic & foreign) and to a lesser extent, foreign bonds. N225 futures are only 5.4% from their ’07 vs USD/JPY at 9.2% below its ’07 peak. Hi-beta/commodity ccys lagging as oil plunges.