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Dec 05 - 06:55 PM

USD/JPY: Short Exposure Should Work Next Year In Multiple Scenarios - Danske

By eFXdata  —  Dec 05 - 03:15 PM

Danske Research likes structural short USD/JPY exposure in 2023 via calendar put spread. Strategy Sell 3M 144.00 put, Buy 3M 136.00 put, Buy 12M 128.00 put (Spot ref: 136.15)

"It is not our base case that the Bank of Japan tightens monetary policy next year but we are open to the possibility. What could derail a return of inflation in Japan is a global recession and drop in commodity prices.

However, such a scenario would also lead to a rally in US Treasuries. Lower US bond yields and commodity prices would also lead to a drop in USD/JPY," Danske notes.

"Hence, a short position in USD/JPY next year would work in multiple scenarios. We go short USD/JPY via a calendar spread where we sell an ITM 3M put spread to fully finance a 12M USD/JPY put. We choose a calendar spread since we do not expect the above factors to unfold before later in 2023 whilst also seeing the possibility of a near-term bounce benefiting the overall position," Danske adds.

Danske Research/Market Commentary


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