On Tuesday (October 7), the USD/JPY extended its upward trend, reaching a two-month high of 150.61. This was driven by a significant selloff in the yen following political changes in Tokyo. Reports suggest that Sanae Takaichi, a candidate supporting economic stimulus and an outspoken critic of the Bank of Japan’s interest rate hikes, is poised to become Japan’s first female prime minister. The market reacted by triggering a broad-based decline in the yen and reigniting interest in carry trades.
Yen Plummets Across the Board: Takaichi’s Stimulus Agenda Takes Center Stage
On Monday, the yen fell sharply against major currencies after a candidate supporting loose monetary policies emerged as a frontrunner for Japan’s next prime minister. Takaichi has been a vocal critic of the Bank of Japan’s interest rate increases. Following this development, the probability of a 25-basis-point rate hike by the Bank of Japan in the near term dropped from approximately 68% to 41%, sparking a bond market rally, pressuring yields lower, and leading to a broad weakening of the yen. This trend continued into Tuesday.
However, an advisor close to Takaichi hinted that she might still tolerate one final 25-basis-point rate hike. A former Bank of Japan official also noted recently that her influence over central bank policy may remain limited even after assuming office. While it remains uncertain whether her election signifies the end of the Bank of Japan’s tightening cycle or merely a slowdown in pace, the news has been sufficient to prompt many yen long positions to reassess their risk exposure.
As carry trades regained market favor, commodity currencies led gains among non-U.S. dollar currencies. AUD/JPY, CAD/JPY, and NZD/JPY all closed up approximately 2% on Monday; USD/JPY rose 1.9%, closing above the 150 level; GBP/JPY broke through the 200 mark, hitting a 15-month high; EUR/JPY climbed to its highest level since 1991; CHF/JPY and the Nikkei Index both surged to new historical highs, recording their largest single-day gains since April.
JPY Futures Positioning (JPY/USD) – Weekly COT Trader Positioning Report Analysis
The latest trader positioning report shows that pre-positioned longs were caught off guard. As of Tuesday, net long positions held by large speculators and asset management firms increased by a combined 25,600 contracts during the week. New long positions dominated: large speculators’ total yen long positions grew by 9%, while those of asset management firms rose by 8%, adding up to 22,500 new long contracts. Large speculators also reduced their total short positions by 3.5% (cutting 3,600 contracts).
These pre-positioned longs have likely already liquidated their holdings, indicating that the yen may face further selling pressure in the short term until there is clarity on Takaichi’s influence over the Bank of Japan and its capacity to raise rates.
Technical Analysis of USD/JPY
The 192-point gap between the closing price last Friday and the opening price on Monday for USD/JPY marks the largest such gap on the USD/JPY daily chart since May 1990—coincidentally, also near the 150 level where a downward gap occurred at that time. The 1.9% surge on Monday represents the largest single-day increase in nine weeks, with gains extending into Tuesday, as the intraday high (150.61) came within 30 points of the August peak (150.91).
This sharp rally has invalidated previous bearish market expectations; however, the key to sustained upward momentum hinges on confirming whether Japan’s new prime minister can influence the Bank of Japan’s interest rate hike trajectory.
The market will also focus on non-farm payroll data to assess the Federal Reserve’s policy outlook—weak data may reinforce expectations for consecutive rate cuts in October and December. For now, however, pullbacks are more likely to attract buying interest, with market attention centered on retesting the 151.28 double-top high.
If this level is effectively breached, the pair may challenge the weekly third pivot point and the 152 handle in the short term.
(USD/JPY daily chart, source: YiHuiTong)
At 8:59 Beijing Time, USD/JPY traded at 150.49/50.
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