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Feb 29 - 06:55 PM

Credit Agricole: Strategy on Short EUR/JPY Ahead of BoJ March Meetin

By eFXdata  —  Feb 29 - 03:00 PM

Synopsis:

Credit Agricole recommends a short position on EUR/JPY through a 6-month put spread trade, anticipating potential policy shifts by the Bank of Japan (BoJ) in its March meeting. Despite Japan's weak industrial production data, the Japanese yen has seen strengthening influenced by verbal interventions from Japan’s Vice Finance Minister for International Affairs, Masato Kanda, and forward-looking comments by BoJ Board member, Hajime Takata, regarding Japan’s inflation and wage growth prospects.

Key Points:

  • Verbal Intervention by Japan’s FX Czar: Masato Kanda’s comments, aimed at supporting the JPY, have been categorized as level 6 out of 7 on Credit Agricole's verbal intervention scale, with 7 indicating the likelihood of imminent FX intervention.

  • BoJ Board Member's Optimistic Stance: Hajime Takata’s observations suggest that Japan's long-term inflation and wage growth targets are becoming increasingly achievable, hinting at a possible pivot in the BoJ's monetary policy stance.

  • Short EUR/JPY Position via Options: Credit Agricole positions itself for potential JPY appreciation against the EUR, especially with the upcoming BoJ meeting that might introduce changes to Japan's ultra-loose monetary policy.

Conclusion:

With anticipation building around the BoJ's March meeting and potential policy adjustments, Credit Agricole sees value in adopting a short stance on EUR/JPY through options. The combination of Japan’s financial officials' verbal interventions and the BoJ's optimistic outlook on achieving its inflation targets provides a backdrop for potential JPY strength. Investors are advised to consider these dynamics when evaluating their positions in EUR/JPY trades.

Source:
Crédit Agricole Research/Market Commentary

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