JPY: Yen bulls mull positions - ING

The big difference between this year's decline in USD/JPY and that seen last July and August is positioning. Last year's Japanese Yen (JPY) rally was all about the short covering of yen positions as the carry trade was unwound, ING's FX analyst Francesco Pesole notes.

USD/JPY can correct to a best-case rate of 152.50 this week

"This year's decline in USD/JPY has been driven by investors (mainly asset managers) actively taking a long position in the yen. Driving those investment decisions may well have been diversification from the dollar and a view that the yen is one of the most undervalued currencies in the G10 space - a view with which we agree."

"However, speculative long yen positioning has recently become quite stretched and the recent bounce in US equities and US yields have managed to shake out weak yen longs. Depending on the US data, USD/JPY could correct through the 151.25/30 area to a best-case rate of 152.50 this week."

"We wouldn't chase USD/JPY too much higher from there, though, given what could be a rough week for risk assets next week when US reciprocal tariffs are announced. And we're still sticking to our non-consensus view of a Bank of Japan (BoJ) hike in May - which could also trigger some independent yen strength were data or BoJ-speak to prove supportive."