USD/JPY slide makes bears more vocal
A surprisingly strong rally in the yen prior to a U.S. Thanksgiving holiday on Thursday has sparked optimism in the market about its future prospects.
USD/JPY's slide below the 152 pivot level to 150.80 has reversed gains made since the U.S. election results and likely erased much of the yen short positions that were built up since Oct. 21 as risk appetite sours.
With expectations of rate hikes by the Bank of Japan, Japanese repatriation, fiscal spending plans, and the possibility of less stringent tariffs on the U.S.'s largest creditor, the yen is seen as positioned for strength heading into 2025.
December OIS has over 15bps of BOJ rate hikes priced for the next meeting. Given BOJ Governor Ueda's close attention to economic data, Friday’s Tokyo CPI report could solidify tightening expectations and push USD/JPY back below the 150 level.
However, a growing geopolitical risk factor is also influencing yen movements. On Wednesday, Russia warned it would take action if the U.S. deployed missiles in Japan. The warnings come amid rising tensions over Taiwan's security and North Korea's recent ties with Russia.
While the yen is traditionally considered a haven during times of global uncertainty, the escalating geopolitical risks in the region may lead traders to question its status compared to the U.S. dollar, making a likely return to its cloud top at 148.81 potentially a two-way street.
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yen chart https://tmsnrt.rs/4eVGSfT
Yen OI https://tmsnrt.rs/3Z6P33q
(Robert Fullem is a Reuters market analyst. The views expressed are his own.)
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