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CITI cb wklytech 21 11 14.pdf

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Market Commentary │ November 20, 2014
USDJPY- August-November 1998

Source: Aspen graphics/Bloomberg November 19, 2014.

The move from April 1995-August 1998 was much more aggressive that we saw from the October 2011 lows
to the October 2014 high (85% versus 46%)

Similarly the fall was also much more aggressive into the 08 October 1998 lows versus that seen into the 15
October 2014 lows.(24% versus a benign 4%)

Again, this is because the trade was much more owned and leveraged then. The US began a tightening cycle
in 1994 when short term rates were at 3% and long term rates at 6%. With short term Japanese rates at
effectively Zero this strongly encouraged Japanese investors looking for yield overseas to take FX risk as they
were handsomely rewarded to do so. This time around that has not been the case. With short-term US rates at
zero and no tightening from the Fed Japanese investors do not get paid to take FX risk and can hedge very
cheaply. Hence their more limited involvement. In addition, the much lower level of overall yields in the US
provided a less attractive option to leverage heavily.

After the sharp squeeze lower in USDJPY into 08 October 1998 it then bounced sharply. That bounce “ran out
of steam on 30 November 1998 (The Monday after Thanksgiving) and USDJPY then corrected lower again
into the first week of January 1999.(Setting a lower low than in October). Again we would not necessarily
expect such a strong move lower this time as the trade seems “less owned” However; we would not be
surprised if this rally did in fact lose steam in the period from Thanksgiving to the end of the year like it did in

Market Commentary – for Institutional Client Use
Only. Refer to informational disclosures and
qualifications at the end of this publication.

Weekly Roundup
November 20, 2014