MUFG’s Lee Hardman argues that the recent Japanese Yen (JPY) rebound against the US Dollar (USD) is unlikely to last, as USD/JPY remains in a broader bearish Yen trend since the Middle East conflict began. Persistent strong global risk sentiment, deteriorating Japan terms of trade, and rebuilding of leveraged short Yen positions suggest renewed upside pressure on USD/JPY unless authorities intervene.

Bearish yen trend still dominates

"While today’s hawkish hold from the BoJ has helped to provide support for the yen, it is unlikely to trigger a sustained reversal of the bearish trend that has been in place since the Middle East conflict started in late February."

"The combination of still buoyant global investor risk sentiment alongside the deterioration in Japan’s terms of trade have encouraged a weaker yen."

"The latest IMM report revealed that leveraged funds have been rebuilding short yen positions in recent weeks."

"The unfavourable developments are keeping pressure on Japan to back up their verbal intervention threats if they want to prevent the yen from weakening further in the near-term."

"Finance Minister Katayama delivered another warning today ahead the BoJ’s policy meeting to deter speculative selling by stating that “I have consistently referred to taking bold action when needed.”"

"When asked whether the government remains on alert as Japan prepared to enter the Golden Week holiday period, she replied “we’re ready to respond 24 hours a day”. She remains of the view that volatility in crude oil futures remains elevated, and is seen as fuelling speculative moves in the yen."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)