RBC See USDJPY as Reflective of Positioning Unwind, Rather Than YCC Expectations

RBC write on the recent pullback in USDJPY:

• There is a growing narrative that the fall in USDJPY reflects the likelihood of policy change at the BoJ’s July 28 meeting.
• An unwind of very extended short-JPY positions seems like a more plausible explanation, however.
• They note that July was already the favourite month for the BoJ to further relax YCC, though they add that may have subsequently slipped back.
• They would not rule out a further widening of the YCC band at this month’s meeting, nor a swift kneejerk move lower in USD/JPY is that happens.
• RBC conclude that the risk is that the JGB reaction is modest and markets quickly turn back to US rates as the main driver for USD/JPY, as was the case through H1.