BofA: Short/Pay Yen Rates, Not Short USD/JPY

Bank of America note that “the weekend interview article by Yomiuri Shimbun with the BoJ governor Ueda led to repricing on the BoJ policy in the yen markets on Monday.”

• “On Monday, JGB yields rose 2-5bp led by the 20yr sector, the timing of the NIRP removal has been brought earlier by a few months into Q124, and USD/JPY fell 0.8%.”
• “While the initial reaction is understandable, we think shorting/paying yen rates, especially the 10yr JGB, is a better expression than shorting USD/JPY.”
• “Both are negative carry trade but shorting 10yr JGB is likely to remain supported by strong nominal GDP growth and the BoJ's willingness to let long-term yields move higher.”
• “On the other hand, USD/JPY carry is too high for the BoJ to compress without significant cost, in our view.”