Yen carry revival may take a while
Yen carry traders remain quiet, and it might take some time for them to reemerge, even as USD/JPY climbs.
Currency options attach a significant risk premium to the Nov. 5 election date and dollar gains can continue over the next two weeks, particularly against currencies where U.S. presidential candidates have threatened protectionism.
But the combination of a stronger greenback and share gains has yet to resurrect the yen carry trade, especially since longer-term sentiment remains bullish the Japanese currency amid expectations the Bank of Japan will hike rates in the future.
Futures data suggests that, while dollar longs are building above 147, positioning is modest. This is vastly different from earlier this year when a flurry of carry trades sent the yen to a multi-decade low.
While carry trading may reemerge if USD/JPY surpasses the key 152 level, history suggests it will take several months for attitudes and momentum to shift. That was the case in 2016 and 2020 when CFTC data showed yen bulls outnumbering bears.
Short-term, sentiment is bullish as 150 barriers come into view. The Feb. 13 high of 150.88 offers resistance above this level. Key support is at 148.80 ahead of options bracketing the 148 level. A drop below the 147.35 Oct. 8 low may see long dollar positions start to unravel.
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Yen CFTC https://tmsnrt.rs/4eXbZbA
(Robert Fullem is a Reuters market analyst. The views expressed are his own.)
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