MUFG: Yen outlook amid upcoming LDP leadership election

The vote will take place Friday afternoon, with results of the first
round scheduled to be announced at 2:20 p.m. There will be a runoff if
the top candidate fails to win a majority, with the results to be
announced at 3:30 p.m. Tokyo time.

MUFG highlights the potential for investors to offload some of their long positions in the Japanese yen (JPY) as the upcoming Liberal Democratic Party (LDP) leadership election approaches. The yen has recently underperformed, particularly following a cautious signal from the Bank of Japan (BoJ) regarding future rate hikes, leading to increased selling pressure.

Key Points:

1. Recent Yen Underperformance:

   • The yen has weakened alongside the Swiss franc in recent weeks.
   • A notable sell-off occurred after the BoJ’s last policy meeting, where Governor Ueda expressed caution about the need for imminent rate hikes.

2. Impact of BoJ’s Signals:

   • The BoJ’s messaging has pushed back against market expectations for an additional rate hike, particularly with financial market instability and recent yen strengthening.

3. Political Risks:

   • The upcoming LDP leadership election at the end of this week may prompt investors to lighten their long yen positions, adding to the downward pressure on the currency.

Conclusion:

MUFG sees a potential risk for investors to reduce their JPY long positions ahead of the LDP leadership election, especially in light of the BoJ’s cautious stance on interest rates. The recent performance of the yen indicates that it may continue to face challenges, and market participants may respond by offloading their positions in anticipation of political developments.

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This article was written by Adam Button at www.forexlive.com.