/JPY: Westpac: Growth Outlook Bolstering AUD

Westpac note that "the Japanese yen continues to show limited sensitivity to risk appetite, with the rolling 60 day correlation of USD/JPY returns against MSCI World close to zero. AUD/USD's correlation in contrast is around 0.70, so AUD/JPY as a risk barometer is really just AUD – at least in the upbeat risk mood of recent weeks. In terms of containing Covid-19, Japan has seen record daily high new cases lately, in contrast to Australia's near zero daily cases which should help Australia's economy to rebound faster than Japan's. AUD's yield pickup over JPY is extremely low by historical standards but with the RBA repeatedly brushing off the idea of a negative cash rate, there should be limited danger for AUD/JPY from yield spreads near term. Meanwhile the BoJ has ramped up its balance sheet expansion since March though it has been volatile, slowing sharply in recent weeks. The relative QE trend may not be too supportive of AUD/JPY near term. We expect Australia's trade position to remain strong, with iron ore and copper demand elevated, helping offset the damage to Australian exports from ongoing travel restrictions and China tensions. We see AUD/JPY grinding towards 80 in Q1 2021."