BUZZ-COMMENT-Positioning and energy prices throw caution to yen bulls

The yen may need a new catalyst to continue its year-to-date rise.

USD/JPY has been declining since peaking at 158.88 after the U.S. payroll report on January 8. Its steady drop is linked to rising expectations that the Bank of Japan will need to raise its policy rate to manage inflation expectations. Markets are now anticipating two BOJ rate hikes and a 1% policy rate by the end of the year.

However, positioning offers a headwind for the yen, even as expectations for BOJ tightening grow. Weekly CFTC data shows that non-commercial long positions in the yen surged to a record high in the report ending February 11, mainly due to asset manager buying. An increase in futures open interest on Monday suggests these long positions are being extended.

With yen positions stretched and USD/JPY near its trading midpoint over the past six months, volatility remains low. With this, the pair is likely to drift between 148 and 155 until a new market driver emerges.

Yen bulls are anticipating that equity markets will react negatively to tariff implementation or the broader dollar will correct lower. However, rising energy prices, a key import for Japan, could dampen these expectations.

Oil prices are swinging higher and natural gas prices are at their highest levels since December 2022 due to demand factors and inventory concerns.

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