Yen Remains Weak, Says MUFG, as Japan Prepares for Vote

Key Moments

Election Backdrop and Yen Performance

MUFG’s Lee Hardman highlights that the Japanese Yen continues to trade lower versus the US Dollar. This comes as markets focus on Japan’s Lower House election. The currency’s weakness links to expectations around Prime Minister Takaichi’s snap election. Traders anticipate that the election could strengthen her political position.

In his words: “The yen has remained on weaker footing ahead of the Lower House vote. Investors expect Prime Minister Takaichi’s snap election will reinforce her grip on power in Japan.”

Positioning in JPY and Other Popular Trades

Hardman adds that, unlike other crowded trades, bearish positions in the Yen have not yet experienced broad unwinding. This sets the JPY apart from assets where investors have actively reduced exposure since the start of the year.

He explains: “Short yen positions have not yet been caught up in the broad-based liquidation seen in other popular trades this year.”

Risk-Off Sentiment and Spillover Across Markets

Recent market moves also reflect weaker risk sentiment. The drop in speculative assets has started spilling over into other markets. This has created a cautious trading environment for investors.

As Hardman notes: “The sharp decline in precious metals and cryptocurrencies has begun to spill into global equities. This has triggered more risk-off trading heading into the weekend.”

US Labor Data, Fed Outlook, and Dollar Implications

Hardman links weaker US labor indicators to expectations for Federal Reserve policy. Softer labor demand could maintain pressure on the Fed to continue easing. This aligns with MUFG’s view of ongoing US Dollar weakness.

He adds: “Weak labor demand supports our view that the Fed may lower rates further this year. This underpins our forecast for continued US Dollar softness.”

Market Drivers Summary