Forex weekly: From safe haven to hot potato, Yen bulls hit the windshield

The yen just got tossed out of the safe‑haven driver’s seat. A heavier‑than‑advertised dovish twist from the BoJ and a massive bounce in US equities let the air out of record‑long JPY positioning, yanking USD/JPY back toward the mid‑140s and slicing 30‑plus basis points off JGB yields in a single swoop. Ueda basically admitted the tariff shock has him flying IFR with zero visibility: growth and inflation projections were both nudged south, downside risks flagged, and the next hike pencilled in for “later‑this‑year‑at‑best.” That’s all the market needed to hit the eject button on yen longs that were already flashing overcrowded on the IMM scorecard.

Record long JPY positions ahead of BoJ update

BoJ rate hike expectations scaled back

But don’t think we have seen the low in USDJPY yet. Yield differentials are on a one‑way trip lower as every other G10 central bank drifts into easing‑mode to cushion the trade‑induced slowdown. That narrows the carry gap and-once the BoJ panic flush is over-should tilt the risk‑reward back toward a stronger JPY, especially with the currency still miles below fair value. If the Fed hints that June cuts are more than just a tail risk, the dollar layer of armour and the yen’s bid returns faster than you can say “rerisk the book.” But look for the snap back if US equities moonshot, although not my base case outcome.

For now, though, the path of least resistance is a grind higher in USD/JPY so long as dealers commit to cleaning out stale longs and U.S. yields stay sticky.

The real plot twist comes if Trump’s trade team strong‑arms Tokyo into a June deal; take the tariff axe away and the BoJ regains cover to nudge rates north, re‑arming the yen bull case just as the rest of the world is slicing theirs.

But stay nimble, keep stops tight, and remember that crowded trades unwind the fastest when policy rhetoric flips on a dime.

Major G10 currencies have underperformed over the past week

Asia FX traded like the tariff bogeyman got stuffed back in the closet on Friday

The Asia Dollar Index ripped 1.35 %, and the street shelved its bunker mentality the moment Beijing hinted-ever so coyly-that it’s weighing fresh talks with Washington. Tariff‑sensitive pairs went vertical: Taiwan’s dollar clocked a record‑breaking 3.7 % one‑day sprint on Friday and closed the week up more than five handles, turbo‑charged by a 5.4 % YoY GDP beat that steam‑rolled right over a soggy PMI print. Autos and parts levies were dialed down, side deals with Singapore, Malaysia, Korea, and India picked up a head of steam, and suddenly every Asia FX trader acted like Liberation Day never happened.

But let’s not confuse a face‑saving headline with a structural thaw. The Commerce Ministry is still wagging its finger-“show sincerity, scrap the tariffs”-and the next data batch will be ugly: PMIs across the region (save for India and the Philippines) already flashed contraction, and April trade prints will bleed red. Until exports turn the corner, this rally’s foundation is sand.

Cue next week’s catalysts: Wednesday’s FOMC. The Fed is likely to keep rates parked, and Friday’s strong jobs data likely pushed out rate cut hopes from June to July, which should provide a headwind to Asia FX at tomorrow's open. China’s trade dump, late in the week, will add plenty of headline torque. The bottom line is to enjoy the pop, keep trailing stops tight, and remember that sentiment rallies without hard‑data validation have a half‑life shorter than a TikTok trend.