USD/JPY Extends Rally Above 150 as Takaichi’s Stimulus Stance Rattles Yen Traders
The USD/JPY pair surged to a two-month high of 150.61, extending its sharp two-day rally as the Japanese yen weakened broadly following political developments in Tokyo.
Reports suggest that Sanae Takaichi, a leading candidate for Japan’s next prime minister and a strong supporter of economic stimulus, is gaining momentum. Her known criticism of the Bank of Japan’s (BoJ) recent rate hikes fueled speculation that monetary tightening may soon pause, igniting a wave of yen selling and renewed enthusiasm for carry trades.
Takaichi’s Policy Outlook Triggers Yen Selloff
The yen plunged on Monday after markets interpreted Takaichi’s rise as a signal for looser monetary policy ahead. The probability of a 25-basis-point BoJ rate hike fell sharply from 68% to 41%, triggering a bond market rally, suppressing yields, and deepening yen weakness across major pairs.
However, an advisor close to Takaichi hinted she might still tolerate one final rate hike, while former BoJ officials noted her political influence on monetary policy could remain limited.
Traders remain divided on whether her leadership would mark the end of BoJ’s tightening cycle or simply a temporary slowdown. Regardless, the uncertainty has already prompted yen bulls to unwind long positions and recalibrate risk.
Carry Trades Reignite as Yen Weakens
As the yen tumbled, carry trade activity surged, boosting high-yield currencies:
- USD/JPY jumped 1.9%, closing firmly above 150.00.
- GBP/JPY surpassed 200.00 for the first time in 15 months.
- EUR/JPY hit its highest level since 1991.
- AUD/JPY, CAD/JPY, and NZD/JPY all gained around 2%.
- Both CHF/JPY and the Nikkei Index reached new record highs, logging their largest one-day gains since April.
COT Report: Yen Longs Unwind Amid Political Shifts
According to the latest CFTC Commitment of Traders (COT) report, large speculators and asset managers had accumulated significant yen long positions before the rally.
- Net long positions rose by 25,600 contracts during the week.
- New longs increased by 9% among large speculators and 8% among asset managers.
- Short positions were reduced by 3.5%.
These traders were caught off guard by the sudden yen decline. Analysts believe forced liquidation of these longs could add further near-term selling pressure until markets gain clarity on Takaichi’s policy direction and the BoJ’s next move.
Technical Outlook: Bulls Eye 151.28 and Beyond
From a technical perspective, the 192-point weekend gap between Friday’s close and Monday’s open marks the largest since May 1990, notably near the same 150 level that previously triggered heavy intervention.
The 1.9% single-day surge on Monday was the biggest in nine weeks, with Tuesday’s high of 150.61 nearing August’s 150.91 peak.
This rally invalidated prior bearish signals, yet sustained upside momentum depends on confirmation that Japan’s next leadership can steer the BoJ toward a softer stance.
With U.S. non-farm payrolls (NFP) data approaching, traders will monitor labor market figures for hints on Federal Reserve rate cuts expected in October and December.
For now, buy-on-dip strategies are favored, with resistance at 151.28 and potential targets toward the 152.00 handle if the breakout holds.
