Bank of America Merrill Lynch Global Research notes that the risk profile of NKY and USD/JPY are diverging on flow, policy and value. BofAML argues that tactical risk asset rally on positioning = bullish NKY more than USD/JPY.
"One interesting observation in the Japanese market since the summer has been the resilience of Japanese equities compared with a stronger yen against USD and other currencies. With the global market staging a tactical rally led by positioning and dovish central banks, we revisited the issue,' BofAML notes.
"Our conclusion is that short-term upside is greater for Japanese equities while medium-term downside risk still favors lower USD/JPY, essentially keeping the risk profiles of USD/JPY and NKY decoupled," BofAML adds.