Credit Agricole on the yen and euro

EU political risks have arrived and are giving the JPY a boost. Investors are starting to hedge downside in EUR and many are doing it via EUR/USD and EUR/JPY.

We expect this support for the JPY to remain while EU political risks remain elevated, especially given the still significant short JPY positions in the market. There are several important pieces of data out of Japan next week including IP, labour market, capital spending and inflation data. If the data was to surprise to the upside and show that Abenomics is beginning to work to boost potential growth and inflation, they could give the JPY a boost.

The 10Y JGB auction will also be of some interest next week, given the recent spike in yields toward 20bp. But, with higher levels of risk aversion on the back of EU political risks, this should keep JGB capped for now.

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