BUZZ-COMMENT-Yen gets tailwind from BOJ, portfolio shifts

Bank of Japan's hawkishness and U.S. tech concerns offers a tailwind for yen buyers.

Expectations for tighter BOJ policy and JGB yields rose after Deputy Governor Ryozo Himino’s comments on policy normalization, helping lift the yen on Thursday.

Higher yields in Japan lower forward points used in calculating hedging costs for Japanese investors sending money abroad but also make overseas investments less appealing. Currently, yen hedge costs are at the lowest level since January 2023.

JGB 10-year yields, now at 1.22%, have room to rise further if inflation persists as the central bank reduces its balance sheet. Tokyo's January core CPI—a proxy for national inflation—is expected to accelerate to 2.5%, the fastest pace since February 2024.

Higher yields in Japan and global jitters seem to be driving investors to adjust portfolios. Ministry of Finance data shows that Japanese investors are buying fewer overseas bonds, while foreign investors are purchasing Japanese stocks at the highest rate since October.

Options foresee yen-positive trends persisting. One-year USD/JPY risk reversals are the most bearish since November, though some of the shift helps hedge the outcome of a meeting between Japanese Prime Minister Ishiba and U.S. President Trump on Feb. 7.

This positive yen bias is reflected in a series of lower highs since Jan. 23. For USD/JPY to reverse course, it would need to break above its 154.50 cloud top and an ascending trendline from the January high near 155.50.

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