MUFG’s Senior Currency Analyst Lee Hardman notes that the Japanese Yen is set to be the best-performing G10 currency this week, with USD/JPY dropping sharply after Japan’s election failed to trigger further Yen weakness. He notes short positions are being scaled back, fiscal concerns have eased, and hawkish Bank of Japan commentary is reinforcing expectations for faster rate hikes that could support further Yen strength.

Yen supported by BoJ and positioning shifts

"The yen is on course to be the best performing G10 currency this week."

"After initially selling off at the start of this week after the Japan election results, USD/JPY has since fallen sharply hitting a low yesterday of 152.27."

"It appears to be another example of buy the rumour, sell the fact as the yen failed to weaken further after PM Takaichi strengthened her grip on power in Japan."

"Japan’s top currency official Atsushi Mimura warned yesterday that “we have not lowered our guard at all” even after the yen has rebounded this week. He ended by say that “we will continue to monitor market developments with a high sense of urgency and maintain close coordination with market participants."."

"The comments highlight clearly that Japan still wants to deter speculative yen selling which has helped to dampen downside risks at the start of this year."

"A faster pace of BoJ rate hikes is one potential catalyst that could reinforce the yen rebound in the coming months."

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