1. Slightly late posting this position but we got long at 104.5 earlier today. The rationale behind owning USD VS JPY is as follows.
USD risks are bid
1) in the run up to the 2015 dec hike USD traded extremely bid with DXY breaking through 100, based on the last 2wks i expect USD to mirror 2015 and continue the bid tone we have seen both in 2015 and now. That said in the past few wks usdjpy has traded relatively mutely compared to the market thus imo has more alpha than other crosses and as another few 100pips before we can consider usdjpy stretched.
2) the usdjpy has a Dec hike to look forward to. Whilst i expect USDJPY to be faded as we saw following the last hike, i think these next 2 months we will trade to 109/11 as rate hike hopes push the pair into firmer resistance.
3) USD election risk is likely going to fade with the neutral choice of Hilary winning. Thus any Trump uncertainty weighing on the USD will be washed out which could be worth 50pips at least.
JPY risks are to the soft side
1) BOJ monpol risks remain skewed somewhat to the dovish side since whilst continues to trade firmly and consistently below 0 the BOJ are DEFINITELY unable to raise rates and are unlikely to consider tapering (the ECB has firm 0.4% and even they may not consider a taper). Thus the risks are certainly to adding to easing, with the most hawkish outcome being neutrality.
2) JPY like the rest of the safe havens remain bid up some 20% in 2016 alone thus a correction lower some 5% isnt extreme and infact is fairly justified (thus a 111 target is arguably on the cards). This is especially true assuming the next big risk event (election) passes with the most neutral and odds on favourite candidate winning (hilary). Thus any risk premium priced into yen for this purpose will be faded and encourage the 5% correction i mention above.
3. JPY remains at the lows of the yearly range thus a topside correction encouraged into election and FOMC events will possibly see yen trade with a softer bias.
Risks to the view:
1. If Trump pulls off the tail end probability then USDJPY long imo will be invalid given i expect the USD to trade softer and yen to rally. I would expect USDJPY to trade to 100 in the event of Trump winning.