BUZZ-COMMENT-Yen bulls should remain cautious into March mania

Yen bulls might want to hold off on reengaging for now.

Position squaring is putting pressure on the yen as concerns over U.S. tariffs push traders towards the greenback, while expectations for BOJ tightening are diminishing. Data from the close of business on Thursday shows yen near-date open interest has decreased for the second consecutive day. Since this occurred alongside a USD/JPY rise, it could suggest that long yen positions are gradually being exited or rolled. Positioning hit a five-month high on February 21, the same day USD/JPY dipped below 149 for the first time since early December.

Although the yen has recently found support as a haven amid declining U.S. share prices, this dynamic may be changing as February ends. First, markets might expect Chinese authorities to allow more yuan weakness if new U.S. tariffs on China take effect on March 4, which could affect the broader Asian currency complex, including the yen. Positioning indicators suggest that the greenback's broad rally on Thursday could be due to new long positions being established prior to that date rather than short-covering from a month-long slump.

Second, recent Japanese data, including a softer-than-expected February Tokyo CPI of 2.2%, suggests BOJ officials have the flexibility to be patient about tightening policy.

Third, Fed policymakers seem hesitant to signal imminent rate cuts with inflation remaining stubbornly high. Data released on Friday showed core PCE rose 0.3% in January, matching December’s increase. The annual rate of 2.6% is well above the Fed’s 2% target.

Lastly, EUR/JPY has potential to rise further if short positions are covered due to optimism about Ukraine or a hawkish ECB cut next week.

While lower oil prices and falling Treasury yields should limit USD/JPY gains for the day, bears should nonetheless remain cautious should it near the 152 pivot level.

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