Medium Term / Buy
Global Macro Strategist
Summary: USDJPY could see new highs north of 120.00 on a pronounced break through 115.00.
Price Target: 116.00, 117.00, 120.00
Market Price: 113.04
We see a target price at new highs north of 116.00 to 117.00 for half the position, with the balance looking for a 120-plus handle. Apart from the recent price action of USDJPY – a lack of yen buying in the October equity sell-off plus overall higher US yields and rates – the main rationale for this trade is based on historical seasonality for USDJPY in November.
As you can see from the five-year seasonality grid below, the average historical move in USDJPY has been +401 basis points, with the skew being +920 bps to -97 bps. It's worth noting that on a 10-year historical range, the average drops to +198 bps and the skew, while still asymmetrical, drops drastically from +920 bps to -108 bps.
USDJPY closed last week over the key 200-week moving average of 113.03 – a second consecutive close above that point would bode well for USDJPY bulls.
Time Horizon: One to three months
Given that USDJPY volatility has been relatively subdued, one could also look to express this trade through long calls and call spreads, or even out-of-the-money 115 calls.
You could also look to play a six-month one-touch with a 120 strike; with an expiry of 26 April you would be paying about 18% in premium. Remember as well that these can always be closed out before 120 is reached and/or prior to expiry.
Finally, those looking to play the reverse of this trade view could potentially put their stops above the recent 114.55 highs, targeting a break for 111.32.
Finally, while positioning in yen shorts is not at extremes against the USD, on a broad basis the market is quite long the US dollar, which always invites positioning risks.