USD is in weak period recently. Investors are high following the exchange rates movement due to USD exchange to JPY went down in the last 4days.
The latest report from UBS Wealth Management Investment Director Office point out the weakness of USD and the hedging demand of JPY would make USD to JPY 108 to 115 interval and stay low. USD to JPY might go down to 102-105, then get back to 110. It is because of the risks of the war between US and North Korea. Exclude the risks, the expecting 113 in 3-6 months would stay the same. 110 in 12 months.
UBS believed USD to JPY stayed low at 108-115 interval is because of the weak USD not JPY strong. The speculative position of USD keeps going down in the past few months. However, JPY stays at a higher net clearance water level. Since that, UBS suggest a cautious attitude to have JPY in short position especially the intense situation in Korea now. Therefore, investors who want to bet on USD should consider the other currency such as AUD. Despite Japan is nearby Korea, UBS believes JPY would go up once the war happen. JPY to USD would be 102 to 105.
However, UBS expects the JPY rebound wouldn’t last long. As the market expects Japan Central Bank take easing policies, USD to JPY would head 110 back. It might go like March 2011 after the tsunami hit Japan. USD to JPY dropped 10% at the beginning, then get back to the same level before the tsunami in few weeks.
Moreover, UBS mentioned that Japan Central Bank might try to avoid JPY goes too high when global risk aversion is going higher. From the capital flow site, military conflict may cause funds withdraw from stock assets. However, UBS believes that it wouldn’t affect JPY too much. The foreigner investors might have already avoided the risk on the exchange rate. Therefore, the withdrawing of funds and stocks wouldn’t affect the exchange rate of JPY so much.