Foreign exchange traders are increasingly turning optimistic on the Japanese yen, with the first signs of this shift appearing in major cross-currency pairs. The yen's gains against the euro, Swiss franc, and British pound could soon extend to the dollar-yen rate.
Frequent actual and verbal intervention, combined with the prospect of a Bank of Japan rate hike, is improving the overall environment for the yen. Additionally, the possibility that Japan's Government Pension Investment Fund (GPIF) may begin repatriating more funds to purchase domestic Japanese bonds is simmering in the background.
Meanwhile, speculative traders had increased their net short yen positions just before the dollar-yen pair fell toward the 155 level last week. By the time the next CFTC report is released, those positions are likely to have been significantly reduced.
Net short positions in the euro and Swiss franc also remain at low levels, leaving ample room for traders to establish bullish yen positions through cross-currency pairs ahead of the Bank of Japan's decision. With market expectations growing for a hawkish pivot from the BOJ, investors will be watching whether the bank passes a rate hike resolution by a unanimous 9-0 vote on September 18, followed by Governor Kazuo Ueda maintaining the possibility of another increase in October.
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