The Japanese Yen (JPY) is currently stable against the US Dollar (USD), but it is underperforming compared to all G10 currencies. This happens in a market where the USD is weak due to sentiment. In a risk-on environment, the JPY tends to act as a safe haven. Recent economic data showed that the Producer Price Index (PPI) increased slightly more than expected, at 2.7% year-on-year.

Japanese Prime Minister’s Influence

The new Japanese Prime Minister, Takaichi, has raised concerns about possible influences on the Bank of Japan’s (BoJ) policies. This situation adds complexity to predicting currency and economic trends. The FXStreet Insights Team gathers and summarizes market information from various experts. They combine insights from in-house and external analysts to provide thorough updates. The Japanese Yen is trailing its counterparts, struggling even against a weakening US dollar. This trend aligns with the current risk-on sentiment, where investors are moving away from safe-haven assets like the yen in search of better returns. The VIX index, which measures market fear, supports this, recently dropping below 14—its lowest level in several months. This weakness is intensified by the BoJ’s very loose policy compared to other central banks. Despite recent comments from Prime Minister Takaichi’s administration, the BoJ has not indicated plans to change its yield curve control policy. The growing interest rate gap between Japan and other major economies continues to put pressure on the yen.

Bearish View Reflected in Derivatives Market

The bearish sentiment is evident in the derivatives market. The latest Commitment of Traders report reveals that large speculators have increased their net short positions on the yen to over 100,000 contracts. This suggests that many traders are betting that the yen will continue to weaken in the coming weeks. In light of this, one strategy could be to buy call options on the USD/JPY pair. This allows traders to benefit from a potential rise while limiting their risk. With the pair recently trading above 155, options can effectively express a bullish outlook on USD/JPY. However, it’s important to note that these levels have caught the attention of Japanese officials before, especially during interventions seen in 2022 and 2024. While the fundamentals indicate a weaker yen, there is a risk of sudden actions from the Ministry of Finance, making strategies like shorting puts on USD/JPY particularly risky. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now