J.P.Morgan: De-Risking Dominates

J.P.Morgan note that “late November saw Japanese investors net selling foreign assets, potentially representing some profit-taking amid concerns over the Omicron variant. But overall Japanese capital flows remain light; deleveraging/de-risking in foreign spec positioning looks to be the dominant driver of recent USD/JPY price action. This looks consistent with USD/JPY recoupling to long-end yields, rather than short-end rate spreads (JPY spec positioning has been closely aligned with the trajectory of U.S. 10-Year yields). A decisive recovery in sentiment, and/or some widening in long-end spreads, is probably a prerequisite for USD/JPY to break out of its recent range.”