MUFG’s Lee Hardman notes that the Japanese Yen remains weak against the Dollar ahead of Japan’s Lower House election, with short JPY positions yet to see the broad liquidation seen in other trades. He links the move to global risk-off conditions, a sharp correction in speculative assets, and weaker US labour data that support expectations for further Federal Reserve rate cuts and US Dollar weakness.

Position liquidation and labor market concerns

"The yen has continued to trade on a weaker footing ahead of this weekend’s Lower House election in anticipation that Prime Minister Takaichi’s decision to call a snap election will pay off and strengthen her grip on power in Japan."

"Short yen positions have not yet been caught up in the broad-based position liquidation that been taking place in other popular trades at the start of this year."

"The sharp correction lower in precious metals and cryptocurrencies has started to spill-over into global equity markets at the end of this week triggering more risk-off trading conditions heading into the weekend."

"The reports support our view that weak labour demand will keep pressure on the Fed to lower rates further this year under the new Fed chair, and support our forecasts for further US dollar weakness."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)