The Yen’s charging – Societe Generale

The unwinding of short Japanese Yen (JPY) positions continues apace, Societe Generale FX strategist Kit Juckes notes.

A further fall in USD/JPY is unlikely to be sustainable

“In the three weeks since it peaked, it has gained 6% against the USD, 8% against the AUD, 9% against the MXN and BRL, and 11% against the NOK. Were there huge, long NOK/JPY trades on out there that I didn’t know about? Sales of Yen calls, to finance purchases of puts, was a trade that benefited from (and helped drive) a low volatility, slow rise in USD/JPY.”

“Those trades can’t survive a spike in volatility, let alone am appraisal of the trade’s future as Fed easing comes closer, the US yield curve disinverts rapidly and BoJ rate hikes come into sight. So far, the momentum of the move (at least as measured by RSIs) is similar to that in late 2022 and late 2023.”

“To that extent, a further fall in USD/JPY at the current speed is unlikely to be sustainable. A slower move lower, on the other hand, would confirm that this really is more than just a ‘clear the air’ flush of speculative positions.”