CITI: Just Keep Selling The Yen

In a note, Citi advises clients to keep buying USDJPY (on the dips) meaning, keep selling the yen against the dollar.

Here’s the commentary from Valentin Marinov and Osamu Takashima, which notes key events coming up from the Fed and the Bank of Japan on Wednesday:

JPY strengthened across the board following comments by Japan’s economics minister Akira Amari yesterday that further yen depreciation could hurt Japanese consumers. The remarks highlighted the key risk to the latest yen selloff – the concern that excessive currency weakness could erode real consumption in Japan and force BoJ to reconsider the speed of its balance sheet expansion. The recent increase in JGB yields also seemed consistent with market fears that the BoJ could taper its asset purchases if (imported) inflation stages an early return.

We expect the yen weakness to resume ahead of the BoJ meeting on Wednesday. Investors will pay particular attention to Kuroda’s press conference looking for indications about the future policy outlook from here. We think that Governor Kuroda will stick with his goal of achieving 2% annualized inflation in two years. In addition, he could signal willingness to counter excessive moves in the bond yields by adjusting the size and frequency of its asset purchases.

We think that USDJPY remains a buy on dips also ahead of the Bernanke’s testimony before the Joint Economic Committee and the April FOMC minutes both due Wednesday. The key question for many investors will be the extent to which the recent soft inflation data have affected Fed’s view on the economy. We doubt that Bernanke would signal a significant change in outlook ahead of the June 19 FOMC. In this regard, if the Chairman highlights the still very stable inflation expectations gauges and hence downplays the importance of recent data, this could support USD.

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