Time to Buy Yen Approaches
- Written by: Gary Howes
Image: Official White House Photo by Daniel Torok.
A drop in the yen's value offers a tactical opportunity to buyers.
The Japanese yen fell to its lowest level in 19 months against the dollar and a new 19-year low against the pound on talk of a snap election in Japan.
Moves were triggered by domestic news reports that Prime Minister Sanae Takaichi is eyeing a snap early election, judging that her popularity would bolster the fortunes of her Liberal Democratic Party and return its majority in the Diet.
Takaichi advocates a policy of government stimulus and low interest rates, which are a significant headwind to the value of the yen. The news sent dollar-yen to 158.89 and pound-yen to 214.29.
However, according to FX analyst Kit Juckes at Société Générale, the yen's latest impulse lower could offer an attractive entry point for buyers.
He explains that the latest drop makes positioning a great deal more attractive to potential buyers:
"The latest move has unwound the long yen position built up in the first few months of 2025."
Above: GBP/JPY at monthly intervals.
And, Soc Gen analysts Reo Sakida in Tokyo and Stephen Spratt in Hong Kong say that markets could be over-egging the 'Takaichi trade':
"Even with a majority in the House, the administration is unlikely to pursue aggressive fiscal expansion immediately."
Juckes says you would be brave to start buying yen at these levels, given the force behind the move (the old adage about catching falling knives applies here), but the time to consider such a move is nearing.
He says there is "a case for a ‘buy the dip’ strategy in long JGBs. The same is likely true for the yen. A spike in the coming days, may finally be an opportunity to go short USD/JPY."
Above: USD/JPY at monthly intervals.