How do expectations of a CNY revaluation affect JPY?

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We expect a downtrend in USD/CNY to resume in 2Q, resulting in a broad rally in Asian FX. Although there is no fundamental link between USD/CNY and USD/JPY, there has been a modest correlation between USD/JPY and USD/CNY NDFs.

Correlation between USD/JPY and USD/CNY NDFs suggests relevant flows of “proxy trades”.

Thus, heightening expectation for a larger degree of CNY appreciation would push USD/JPY lower accordingly. Short-term event risk: Canadian G7 meeting.

ENDS