Analysts say weak positioning and fiscal doubts limit yen upside unless Bank of Japan signals faster rate hikes or stronger intervention.
The Japanese yen approached the Bank of Japan’s latest policy decision with weak flow momentum and lighter investor positioning, despite net long JPY and short USD/JPY bets. Analysts note that inconsistent spot demand and negative cash flows have created an asymmetric risk profile for the currency.
Fiscal concerns and perceived policy hesitation have eroded confidence, leaving yen valuations attractive but unsupported. Governor Kazuo Ueda indicated the BoJ could accelerate rate hikes if monetary conditions remain too loose, citing yen volatility’s impact on inflation near the 2% target.
Stronger intervention or clearer guidance from the BoJ could restore credibility and trigger a sharp yen rally, analysts said. U.S. Treasury Secretary Scott Bessent described the yen as undervalued and expected further strengthening.