This year’s decline in USD/JPY differs from last year’s due to positioning changes in yen trades. The current decline has been influenced by asset managers taking long positions in the yen, with some viewing it as undervalued among G10 currencies.
Speculative Positioning And Market Corrections
Recent speculative long positions in the yen have become stretched, and the rise in US equities and yields has led to a correction in these positions. USD/JPY may correct through the 151.25/30 range, potentially reaching a maximum of 152.50 this week, though upward movement may be capped due to impending risks associated with US tariffs.
A potential Bank of Japan rate hike in May may independently strengthen the yen, depending on upcoming economic data or statements from the bank.
The movement in USD/JPY we’ve witnessed this year stands apart from last year’s decline, largely owing to shifts in positioning within yen trades. Unlike before, asset managers have taken up long positions, seemingly confident it remains undervalued within the G10 currency group.
However, as of late, these speculative long positions in the yen have become somewhat stretched. The uptick in US equities and bond yields has prompted a reduction in some of these trades, leading to a correction. Considering current conditions, a pullback through the 151.25/30 range seems likely, though there’s room for an extension towards 152.50 this week. That being said, any further upward momentum might struggle, as uncertainty surrounding potential US tariffs continues to loom.
Bank Of Japan Rate Hike Prospects
On another front, there are expectations that the Bank of Japan could decide to lift rates as soon as May. Whether this materialises, however, will largely depend on how upcoming economic data unfolds or if policymakers offer any signals that lean in that direction. Should such a shift occur, the yen could see renewed strength, independent of external factors.
