USD/JPY: Current Level Attractive For Dip-Buying For Japanese Retail Investors
USD/JPY has been trading weakly ahead of the meeting between US President Trump and Japan’s Prime Minister Abe on Friday.
Investors’ cautious stance amid political uncertainty in the US and euro area likely put upside pressure on JPY. Leveraged funds’ JPY short positions have unwound recently. Japanese policymakers are likely to argue that the macro policy is not aimed at weakening JPY, while presenting a policy package that should support the US economy and job market at the summit meeting790. The US administration’s response is still unclear and investors’ activity will likely be muted before the meeting.
Some Japanese investors may see the current level as attractive for dip-buying of USD/JPY though. Japanese margin traders, aka Mrs Watanabe, have been very quiet recently, but their positioning began moving mid-last week. Margin traders had slashed their JPY short positions aggressively after the UK referendum, based on the TFX (Figures 1 and 2). Their USD/JPY positions had turned to net short positions before the US presidential election, which is historically rare. Since then, USD/JPY positions held by margin traders at the TFX have been largely flat, keeping net short positions at around –JPY150bn ($1.3bn). They tend to be contrarians, and the lack of JPY selling in late January was slightly puzzling.
Our latest individual investor survey suggests retail investors still prefer USD among major currencies, and dip-buying demand should increase gradually while their positions at the TFX remain net shorts.