The Japanese 10yy is turning back to the downside. Sell AUDJPY

Hey all.

I've been an avid fan of selling rallies on AUDJPY for the last year or so.

Over the last few months, we saw the Japanese 10 year yield push higher from its lows (the Japanese 10 year bond was being sold).

This was probably due to a slight recovery in global data, leading to a more risk on environment...

And we eventually saw the Japanese 10 year yield push up to positive for the first time since March 2019.

I do not believe the yield can sustain above 0%, however, due to the extensive QE push that the BoJ have conducted over the last 2 decades, since causing this debt to become relatively more expensive would be suicide for the central bank.

On top of this, I do not believe that Abe's fiscal stimulus will create the desired increase in inflation expectations in the short to mid term.

If it were to occur, however, we'd likely see a front end steepening of the Japanese yield curve.

The BoJ have a policy of YCC (Yield Curve Control) where they want to keep the 10 year yield at or below 0%, since it's believed that the central bank is only able to control short term rates - this is why they introduced this measure.

If we look at the chart of AUDJPY with the Japanese 10 year yield overlaid in orange, we can see that we are at a turning point, and this is potentially a good place to sell the Aussie versus the Yen to action this macro theme.

What to watch out for as well could be a greater proliferation of the Chinese flu epidemic which is likely to lead to Yen being bought, potentially as a safe haven.

I do not necessarily think this will have an effect on US stocks, since USD can also end up being a safe haven, and with the Fed essentially supporting the US markets, it may not make a valid case to be short AUDUSD - the idea is best supported by using JPY as the counter pair in the trade.