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asset globally where vols are up this year — and the one with broader consequences for neighbors (through EM Asian intervention policy). Hence, this week's focus in our FX Markets Weekly on two other dimensions of the bearish yen view: what is the currency worth if the BoJ successfully delivers 2% inflation, and how broad is the yen short. ° To those who believe in purchasing power parity (and we are not amongst them), USD/JPY could move to 100 on a credible BoJ. Realizing these extreme targets requires Japanese participation in this yen move, since international investors could reach their risk limits on yen shorts. So far domestics look fairly unconvinced. Japan has been posting net capital outflows (foreign purchases of JGBs minus Japanese purchases of foreign bonds) since mid-2011, but the pace of those outflows has not increased since then- candidate Shinzo Abe began calling for much looser monetary policy. Stay short yen on the possibility that locals join the move, but rotate exposure. Book gains on a KRW/JPY one-touch, a USD/JPY seagull and CHF/JPY cash. Stay long NOK/JPY and re-enter EUR/JPY (both in cash). Stay short USD vs a basket of AUD, RUB and KRW. Commodities ° Commodities are up around 1% this week, with all sectors gaining ground. In Wednesday’s GMOS, we retained all our previous positions. Our main trades are long Brent time spreads (long front vs. third futures contract), long industrial metals, long US natural gas and short agriculture. Production losses in the North Sea should support our Brent trade, while the current economic rebound in China should push industrial metals higher. US Natural gas should benefit from the ongoing switch from coal to gas for power generation and 2013 should see the first slowdown in production since the boom began five years ago. e The GSCI agriculture index has already reversed around 80% of its rise in summer 2012 as farmers have planted a much larger area, which means a higher likelihood of much higher future supply. We stay short for now as we think this downtrend has further to go. We are also long gasoil vs. Brent. Global inventories are very low and demand from Asia is picking up, consistent with the economic data, which we expect to improve further over the coming months. An expected cold snap should also help push demand higher through January ° We took profit on our long position in gold last Friday and year-to-date gold is down around 1%. We believe many investors had bought gold over the past few years to hedge against the risk of “QE unlimited.” The recent FOMC minutes, however, have since raised the risk of an early end to QE, reducing to need to hedge through gold. The risk is thus that a number of market participants will reduce their gold hedges, pushing gold prices down further. We still like gold as a hedge against long-term inflation risks once global growth returns to trend and we would look to reopen the position at around $1,550/oz.. Jan Loeys (1-212) 834-5874 jan.loeys@jpmorgan.com John Normand (44-20) 7134-1816 john.normand@jpmorgan.com Nikolaos Panigirtzoglou (44-20) 7134-7815 nikolaos.panigirtzoglou@jpmorgan.com Seamus Mac Gorain (44-20) 7134-7761 seamus.macgorain@jpmorgan.com Matthew Lehmann (44-20) 7134-7813 matthew.m.lehmann@jpmorgan.com Leo Evans (44-20) 7742-2537 leonard.a.evans@jpmorgan.com If you no longer wish to receive these e-mails then click here to unsubscribe www.jpmorganmarkets.com Analyst certification: I certify that: (1) all of the views expressed in this research accurately reflect my personal views about any and all of the subject securities or issuers; and (2) no part of my compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed herein. Important disclosures, including price charts, are available for compendium reports and all J.P. Morgan—covered companies by visiting https://mm.jpmorgan.com/disclosures/company, calling 1-800-477-0406, or e-mailing research.disclosure.inquiries@jpmorgan.com with HOUSE_OVERSIGHT_031123