MUFG senior currency analyst Lee Hardman notes that the Japanese yen will be the best-performing G10 currency this week, with USD/JPY falling sharply after the Japanese elections failed to further weaken the yen. He notes that compact positions are being reduced, fiscal concerns have eased and the Bank of Japan’s hawkish commentary is reinforcing expectations for faster interest rate increases that could support further strength in the yen.

Yen supported by the BoJ and positioning changes

“The yen is on track to perform best as a G10 currency this week.”

“After an initial sell-off earlier this week following the Japanese election results, USD/JPY fell sharply, hitting a low of 152.27 yesterday.”

“This appears to be another example of buying rumors and selling facts as the yen did not weaken further after Prime Minister Takaichi consolidated her 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 rebounded this week. He concluded by saying that “we will continue to monitor market developments with a high sense of urgency and maintain close coordination with market participants.”

“The comments clearly underscore Japan’s continued desire to rein in speculative selling of the yen, which helped reduce downside risks earlier this year.”

“The faster pace of BOJ interest rate increases is a potential catalyst that could strengthen the yen’s recovery in the coming months.”

(This article was created with the lend a hand of an artificial intelligence tool and has been reviewed by an editor.)