MUFG’s Lee Hardman observes that the Japanese Yen has not benefited from lower energy prices, with USD/JPY still above 160.00 ahead of the BoJ meeting. He notes record short Yen positions and expects a fully priced 25 bps BoJ hike, while warning that persistent Yen weakness could prompt further intervention, especially if falling energy prices and softer Fed expectations support a stronger Yen.

Yen shorts build before policy decision

"The yen has failed to benefit so far from the ongoing drop in energy prices with USD/JPY continuing to trade above 160.00 ahead of this week’s BoJ policy meeting."

"The latest IMM report revealed that leveraged funds have significantly increased short yen positions since the conflict started."

"Short yen position increased for the fifth consecutive week to 9th June and have increased by almost four times since late February reaching."

"It is the largest short yen position since the start of July 2024 which was then followed by the heavy liquidation of yen-funded carry trades in the summer of 2024 after the BoJ hiked rates in July 2024 and the Fed cut rates in September."

"If the yen remains weak, it will keep pressure on Japan to intervene again to provide support."

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