USDJPY looking cheap relative to equities
Japan’s Nikkei 225 equity index is trading higher today following a Kyodo News report that the government is considering cutting corporate taxes – a proposal that has been rumoured for several weeks. The rise in shares has also weakened the JPY. We continue to believe that the close relationship between USDJPY and the Nikkei 225 equity index will remain intact as the very loose BOJ policy boosts nominal GDP growth in Japan as well as weakening the JPY. Indeed, since September 13 the trend move higher in the Nikkei 225 Index has not been matched by USDJPY. The gap is inconsistent with the trend seen year to date so far and signals USDJPY above 100 (see chart). We favour USDJPY and AUDJPY to move higher. We maintain a long AUDJPY recommendation targeting 96.00.
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BNP Paribas