Multi-Asset Essentials

Speculation’ had increased in recent weeks
One condition for official FX intervention to have a notable impact was satisfied in recent weeks, with more signs of pure speculation: CFTC net JPY shorts near record high, with open interest up; and USD/JPY pulling away from real yield moves.

Lasting impact needs backing from sustained turn in real yield trends
For FX intervention to have a lasting impact, the 3-year old uptrend in UST vs. JGB real yields (chart below) likely needs to reverse. This probably needs the upward drift in US rate expectations to stop short of pricing in renewed Fed tightening.

Prefer CHF to JPY as funding currency
Overall, we see a sustained move in USD/JPY above 160 as unlikely. And sentiment is stretched near-term according to our SBI. Still prefer CHF as a funding currency for carry positions e.g., long AUD/CHF. A case for long AUD/CAD is also outlined.

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