FXStreet (Delhi) – Taisuke Tanaka, Research Analyst at Deutsche Bank, suggests that risk-off/risk-on swings every several months provide opportunities to build USD/JPY long positions. Key Quotes “The market has become risk-off since the start of 2016. The marked picked up due to temporary risk-on ahead of the US rate hike in December. The liftoff in the US was almost fully factored in, which prompted an air of adjustment once rates were actually hiked. In addition, the early stages of the US rate hike cycle could well destabilize risk markets, such as the equities, EMs, and resources. This has overlapped with concern about the situation in the Middle East and increased worry about the decline in Chinese stocks and the yuan, heightening a move to risk aversion worldwide. These have not been welcome developments for yen bears including ourselves. However, the situation is within the range of our expectations. A US economic recovery would be a help for the global economy, but is a double-edged sword since US rate hikes and dollar appreciation put pressure on EMs and resources. It is also difficult to envision a rapid improvement in geopolitical risk. The market looks like it will swing between risk-off and risk-on every several months amid a sluggish improvement in the world economy. For now, we see this as a favorable opportunity for USD/JPY dip-buying. We maintain our view that the first wave of loss-cutting when USD/JPY fell below 120 has ended, pension funds and other Japanese investors will start to buy on dips around the 118 level, and 118-116 will be the good support level. There are many questions as to why USD/JPY has not declined despite US 2yr rates rising sharply reflecting the Fed's rate hike, but the correlation between the two being unstable for a while after a rate increase, even prone to taking on a negative correlation, is a pattern observed in the past.” For more information, read our latest forex news.