J.P.Morgan Issue Short EUR/JPY Recommendation

Late on Friday saw J.P.Morgan note that they overlay their "EUR/USD short with a longer-term strategic short EUR/JPY position that aims to capitalize on a number of diverging fundamental issues that favour JPY over EUR."

• "We view a decent tactical opportunity to enter as well given that the local political atmosphere has the potential to provide JPY strength through unhedged flows amid renewed optimism for local equities in Japan. This is a timely potential trigger that could help catalyse the structural adjustments. These include diverging monetary policy (leading candidates in Japan have shown lesser predisposition for Abe-style easy policy, and together with a potential replacement of the BoJ Governor, could expedite the BoJ's ongoing normalization) and a recent dynamic shift in the BoP backdrop that highlights decreased structural headwinds for yen and much less tailwind for euro; these together highlight what still looks like an excessively-rich EUR/JPY vs both the BoP profile as well as standard rate spread metrics. Coupled with the potential for JPY-supportive net flows as well as a still-murky cyclical backdrop, the timing feels appropriate to enter EUR/JPY downside."
• As a result, they sold EUR/JPY at Y129.57, with a stop-loss at Y133.46