The market widely speculates that the Bank of Japan will raise interest rates this month, but market participants still bet that the yen will weaken against the US dollar.
Traders at Bank of America, Nomura Holdings and RBC Capital Markets said that investors’ positions reflect this bet. Citigroup’s yen pain index, which measures overall trader positions, remains well below zero, indicating that negative sentiment towards the yen persists in the market.
Even though Bank of Japan Governor Kikuo Ito hinted that interest rates might rise soon and there were reports that the central bank was prepared to raise rates in December if it did not cause a major shock to the economy or financial markets, investors still stuck to their bearish strategy on the dollar. Their reasoning was that even if the BOJ took action, Japanese government bond yields were expected to remain far below those in the United States, which was positive for the dollar.
“The market still leans towards a modest rise in the USD/JPY exchange rate by the end of the year. Unless the Bank of Japan introduces truly impactful policies, this trend is unlikely to reverse,” said Ivan Stamenovitch, head of G10 currency trading for Asia-Pacific at Bank of America in Hong Kong. He pointed out that Masaaki Shirakawa’s hawkish remarks sparked discussions about the currency pair but did not truly alter market sentiment.
The further weakening of the yen could have a significant impact as it would push up import costs, thereby exacerbating already high inflation. Additionally, it could complicate Prime Minister Kishida Fumio’s plan aimed at alleviating the impact of rising living costs on households.
Japanese Finance Minister Masahide Katayama has tried to stem the yen’s weakness, which is partly due to market speculation that the Bank of Japan may delay raising interest rates, but with little success. Although the yen rebounded this month after Prime Minister Junichiro Koizumi gave the clearest hint yet of an interest rate hike, the gains have been limited.
Sagar Sambrani, a senior foreign exchange options trader at Nomura Securities, said that the yen position reflects investors’ view that Japan’s monetary policy seems dovish in the medium term, despite the inflation rate still being far above the Bank of Japan’s target.
Despite the high market expectations for a rate hike in December, it is generally believed that the yen will continue to weaken.
UBS has lowered its year-end forecast for the yen against the US dollar from 152 to 158, while Bank of America expects the yen to fall below 160 in early 2026.
Technical analysis:
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Gold: The breakthrough and pullback buy signal from our blue plugin had a slight glitch. However, the price has now rebounded above 4200/10. Today, we hope to see the price recover further to 4220/30 and then look for a pullback to buy. For detailed positions, please consult the plugin.
(Gold 15-minute chart)
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Nasdaq: The buy stop we indicated with the blue widget after a brief spike still demonstrated a decent performance. For today’s trading, we will continue to monitor the pattern of high-level sweeping followed by a gradual rise, and attempt to catch the long signal after the sweeping. For specific positions, please consult the widget.
(NASDAQ 15-minute chart)
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Crude oil: Although the price has not yet returned to the green buy limit area of our plugin, after the rally, it has entered a consolidation pattern. For today, the main strategy should be to buy on pullbacks after breaks. For detailed positions, please consult the plugin.
(Crude Oil 15-Minute Chart)
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