USD to work its way back toward JPY120 - BBH

Dollar is running higher against the yen and has risen in seven of the past nine weeks notes Research Team at BBH.  

Key Quotes

“It began with an eight-day advance in late September and early October, well before the US election.  After carving out a base in the summer around JPY100, the dollar has rallied strongly.  Since the middle of September, the yen has fallen nearly 12% against the dollar.  The greenback has retraced a little more than 60% of the decline since peaking in June 2015 near JPY126.  In the coming months, we expect the dollar to works its way back toward JPY120.”  

“Since the middle of September foreign investors have returned to the Japanese stock market. In the last 10 weeks, foreign investors bought an average of JPY258 bln of Japanese equities per week.  In these ten weeks, all bought one saw net foreign buying.  The average over the previous 10 weeks was a net sale of JPY249 bln over which time foreigner were net buyers in two of the weeks.   The Topix has rallied about 13% over the period.  Note that the modest gain today put the Nikkei up YTD for first time.”    

“Japan reports the Tankan Survey this week.  There is good reason to be optimistic of the Japanese economy in the near-term.  Growth in this quarter is off to a better start than the previous quarter.  There will be an increase of fiscal stimulus next year.  Higher oil prices will aid efforts to arrest lingering deflation pressures.  While the US President-elect appears to have ruled out TPP, much to Japan's dismay, his more confrontational approach to China and "American First" plays well for Abe, who continues to expand Japan's military capacity.”