CFTC’s data suggest room for a short-term rebound in USDJPY up to around 153
While there were few new catalysts, USD/JPY rose from around 149.00 to around 149.80 during today’s Asian session, supported by rising long-term US Treasury yields. JGBs traded weakly, with market expectations for BOJ rate hikes maintained. As BOJ Governor Ueda said that he isn’t ruling out “the possibility of selling government bonds from the bank’s holdings if it’s needed for market operations” in response to a lawmaker’s question today, JGB futures extended their losses in the early part of the evening session (source: Bloomberg ). That said, we believe his comments are not so surprising, as he seems to have merely stated a principle-based theory rather than that the Bank intends to sell JGBs actively.
As per CFTC’s weekly data, net long JPY positions held by non-commercial traders remained at their highest level ever on 18 March (Fig. 1 ). As many of them may be held by asset managers, who often have long JPY positions for medium-term risk hedging, we believe speculative long yen positions are smaller than the data showed. That said, USD/JPY may rebound owing to position adjustments in the near term. Based on our simple regression analysis of CFTC’s net JPY positions and USD/JPY since the beginning of 2024, if non-commercial traders return to neutral on JPY, USD/JPY may rise to around 153.
However, if the yen depreciates significantly, this might provide the BOJ with justification for hiking rates earlier, such as in May, as it did in July 2024. Thus, even if USD/JPY rebounds due to position adjustments in the short term, its potential upside beyond 155 is likely to be limited, in our view.
Governor Ueda did not rule out the possibility of a May rate hike at the press conference last week , while showing a limited urgency for rate hikes. Specifically, on the recent rise in food prices, though Ueda suggested that monetary policy cannot resolve such supply-side shocks, he said if they lead to upside risk in underlying inflation, “it will be a reason to accelerate” rate hikes (source: BOJ). Today, Reuters also reported that the May policy meeting (30 April – 1 May) could be a “live” one by citing unnamed sources’ opinion that “if [a rise in food costs] persists, it could materially change the way people see future price moves and justify rate hikes.”
Considering the limited risk of falling behind the curve at this juncture, we continue to regard a May rate hike as a risk scenario, with our base case of a July rate hike . Comments by Japan’s Finance Minister Kato that “Japan has not overcome deflation” in an FT interview also support our view. That said, as described above, we would not rule out a May rate hike, particularly if the yen depreciates sharply into the May policy meeting.
Japan’s Flow of Funds data released by the BOJ last Friday indicated that Japanese households’ holdings of foreign assets at end-December 2024 increased to JPY108.8trn ($692.3bn) from JPY98.6trn ($686.1bn) at end-September 2024, reaching their highest level ever (Fig. 2 ). As shown in monthly flow data, Japanese households continued to increase their holdings of foreign securities since the start of the new NISA at the beginning of 2024.
That said, foreign assets as a share of total financial assets remained below five percent (4.9% at end-2024). So, we believe Japan's monetary authorities are not significantly concerned about capital flight yet.
Today, Japan’s Government Pension Investment Fund (GPIF) announced that it will hold a press conference to explain its new medium-term plan from April 2025 to March 2030 from 4:00 pm JST (3:00 pm SGT, or 8:00 am BST) on 31 March. This schedule is consistent with when the fund released its current medium-term plan on 31 March 2020.
As Nikkei already reported that the GPIF will likely leave its basic portfolio unchanged from the current one (an equal 25% allocation to each asset type), market expectations for possible changes in its asset allocation are likely to be subdued. Thus, we believe this press conference is unlikely to move markets next week. That said, any changes to the allowable deviation ranges from the target weights should be closely monitored, as the Nikkei article did not mention them.
