USDJPY: Vulnerable to More Losses
The Japanese Yen is weaker across the board, but that weakness may not last with tonight’s heavy economic calendar.
Household spending, consumer prices and labor market data are due for release. We expect most of these numbers to be Yen positive because consumer confidence is off its lows while labor cash earnings have been strong. The stock market closed at the day’s low which suggests that carry trades could be vulnerable to more losses. On Monday, we published a report on why the USDJPY rally may be short-lived. Our primary argument was risk reversals which indicated that traders were paying a staggering premium for 3 month USDJPY puts. Since then, risk reversals have become even more extreme. The last time we saw risk reversals at these levels was in August, when USDJPY dropped close to 1000 points in less than a month.