Quarterly Outlook
Macro Outlook: The US rate cut cycle has begun
Peter Garnry
Chief Investment Strategist
Sales Trader
Summary: Monetary policy divergence between US and JP remains sufficiently wide giving attractive carry trade while recent developments from BOJ with weak policy tweak with treasury bonds seem to face headwinds post US credit downgrade.
Key events that moved USDJPY
1 year yield 5.63 beats 3m treasury bills and 98% of S&P500’s high dividend stocks but behind high yield corporate yield (HYG) 8.4%.
Forward Curve | Dates | Points Bid/Ask | Forwards Bid/Ask | Yield | ||
ON | 08/07/2023 | (7.03) | (6.17) | 142.71 | 142.72 | 0.05% |
TN | 08/08/2023 | (2.28) | (2.18) | 142.65 | 142.65 | 0.02% |
SP | 08/08/2023 | 142.63 | 142.63 | 142.63 | 142.63 | -1.00% |
SN | 08/09/2023 | (2.29) | (2.16) | 142.61 | 142.61 | 0.02% |
1W | 08/15/2023 | (15.62) | (15.30) | 142.47 | 142.48 | 0.11% |
2W | 08/22/2023 | (31.24) | (30.63) | 142.32 | 142.32 | 0.22% |
3W | 08/29/2023 | (46.67) | (46.19) | 142.16 | 142.17 | 0.33% |
1M | 09/08/2023 | (68.92) | (68.46) | 141.94 | 141.95 | 0.48% |
2M | 10/10/2023 | (141.11) | (140.20) | 141.22 | 141.23 | 0.99% |
3M | 11/08/2023 | (205.92) | (204.83) | 140.57 | 140.58 | 1.44% |
4M | 12/08/2023 | (273.55) | (271.71) | 139.89 | 139.91 | 1.92% |
5M | 01/09/2024 | (356.34) | (352.76) | 139.07 | 139.10 | 2.50% |
6M | 02/08/2024 | (422.37) | (419.16) | 138.41 | 138.44 | 2.96% |
9M | 05/08/2024 | (617.32) | (612.84) | 136.46 | 136.50 | 4.33% |
1Y | 08/08/2024 | (802.72) | (796.49) | 134.60 | 134.67 | 5.63% |
15M | 11/08/2024 | (973.13) | (961.45) | 132.90 | 133.02 | 6.82% |
18M | 02/10/2025 | (1,139.38) | (1,124.92) | 131.24 | 131.38 | 7.99% |
2Y | 08/08/2025 | (1,405.24) | (1,385.82) | 128.58 | 128.77 | 9.85% |
3Y | 08/10/2026 | (1,899.43) | (1,874.88) | 123.64 | 123.88 | 13.31% |
4Y | 08/09/2027 | (2,357.23) | (2,319.40) | 119.06 | 119.44 | 16.52% |
5Y | 08/08/2028 | (2,786.40) | (2,748.11) | 114.77 | 115.15 | 19.53% |
6Y | 08/08/2029 | (3,190.02) | (3,146.29) | 110.73 | 111.17 | 22.36% |
7Y | 08/08/2030 | (3,563.53) | (3,518.58) | 106.99 | 107.44 | 24.98% |
8Y | 08/08/2031 | (3,911.13) | (3,841.19) | 103.52 | 104.22 | 27.41% |
9Y | 08/09/2032 | (4,250.14) | (4,165.55) | 100.13 | 100.97 | 29.79% |
10Y | 08/08/2033 | (4,556.79) | (4,465.35) | 97.06 | 97.98 | 31.94% |
15Y | 08/09/2038 | (5,872.75) | (5,836.79) | 83.90 | 84.26 | 41.16% |
20Y | 08/10/2043 | (6,864.78) | (6,814.06) | 73.98 | 74.49 | 48.11% |
25Y | 08/10/2048 | (7,632.94) | (7,573.87) | 66.30 | 66.89 | 53.50% |
30Y | 08/08/2053 | (8,229.73) | (8,163.23) | 60.33 | 61.00 | 57.68% |
Trade
Strategically Long USDJPY (either spot or forward) - buy the rips or buy the dips - as long as monetary differential between US and JP remains sufficiently wide giving attractive carry trade while recent developments from BOJ with weak policy tweak with treasury bonds seem to face headwinds post credit downgrade, however downside risk may be any black swan events that usually bring demand for yen as a safehaven.
Tactically and ideally 138 handle needs to hold and clear breakout over the downtrend (from Oct 2022 high) would open further upside momentum in the anticipation of retesting 150 handle.