Nov 5 (Reuters) - The correlation between USD/JPY (and most JPY crosses) and equities remains strong, and recent declines on Wall Street and in Japan's major stock indices suggest the pair could fall as hedges established by offshore Japanese equity investors are removed.
Day traders and short-term players who have jumped on the'buy-Nikkei, sell-yen' trade could reverse JPY shorts too.
USD/JPY peaked at 154.48 EBS Tuesday after the Nikkei 225 hit a record high of 52,636.87 points. USD/JPY has since fallen to a 152.96 low in Wednesday Tokyo trading with the Nikkei off from an early high of 51,422.42 after the Tokyo Stock Exchange open to 49,441.52, down nearly 2000 points from Tuesday's close.
With Wall Street also falling Tuesday and expected to head lower Wednesday on government shutdown angst and the Federal Reserve potentially skipping a rate cut in December, the Nikkei could see more declines going forward, dragging USD/JPY lower.
USD/JPY has some support around its daily Ichimoku tenkan line currently at 153.00 but a decisive break could see it towards the kijun currently at 150.53.
With Japanese government bond and U.S. Treasury interest rate differentials narrowing again after the recent increase, JPY buy-backs could accelerate, leaving many shorts in the proverbial dust. Related comment .
For more click on
USD/JPY: https://tmsnrt.rs/3JJfico [https://tmsnrt.rs/3JJfico]
Nikkei 225: https://tmsnrt.rs/3Loz4dJ [https://tmsnrt.rs/3Loz4dJ]
JGB-US Treasury 10-year interest rate differential: https://tmsnrt.rs/3XcE3Ri [https://tmsnrt.rs/3XcE3Ri]
(Haruya Ida is a Reuters market analyst. The views expressed are his own. Editing by Sonali Desai)
((haruya.ida@thomsonreuters.com [haruya.ida@thomsonreuters.com];))
