Morgan Stanley on the yen and franc
From Morgan Stanley:
Buy JPY and CHF. The arrival of Abenomics and BoJ's Kuroda allowed real bond yields to decline, the JPY to weaken and equities to rise. This one-time policy adjustment has run its course. While there is no 'zero boundary' for nominal rates, the zero line has reduced the pace at which nominal yields can fall. Within exhausted yield curves the elasticity of bond yields to fall is now lower than before, imposing significant risk for primary bond dealers.
This morning an article in the Nikkei is suggesting a major Japanese bank is withdrawing from the primary JGB dealer board. Bond market liquidity is already stressed by the central bank's QE operations, so any reduction in primary dealers will likely make liquidity stressed even further.
Within its currently used tool box of QQE and negative interest rates there is no instrument available that the BoJ could use to generate an autonomous decline of JPY real yields. The performance of the JPY may increasingly depend on the evolution of global inflation expectations and its impact on real yields.
Put simply; falling global inflation expectations will see the JPY remaining bid. The CHF falls into the same category.
For bank trade ideas, check out eFX Plus. For instance, today UOB hit target on its NZD/USD
Long from 0.6930 circa 0.7000 (S/T) at a profit of +70
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