Bank of America highlights that tightening election polls in Japan and incoming US tariffs raise fiscal and political risks, making the yen vulnerable. They stay long USD/JPY targeting 152 and prefer EUR/JPY and AUD/JPY as additional ways to position for yen weakness.
Key Points:
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Japanese Election Risk: Early polls suggest the LDP-Komeito coalition may struggle to keep its Upper House majority in the 20 July election, increasing fiscal and political uncertainty.
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US Tariffs on Japan: The US will raise tariffs on Japanese goods to 25% on 1 August, putting pressure on Japan’s economy and fiscal policy while the EU avoids similar tariffs.
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BoJ Policy Bias: Higher tariffs may make the BoJ more tolerant of a weaker yen to offset the economic drag.
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Positioning: Non-commercial traders remain net long yen at CME, leaving the market prone to a squeeze.
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Preferred Trades:
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Stay long USD/JPY, targeting a move toward 152.
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Favor EUR/JPY, as the EU is shielded from new tariffs.
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Bullish on AUD/JPY, supported by China’s growth and no direct tariff threat for Australia after the RBA’s surprise hold.
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Conclusion:
BofA sees further yen weakness as election and tariff risks add pressure, keeping the BoJ cautious. They remain positioned long USD/JPY to 152 and favour EUR/JPY and AUD/JPY as top relative trades.
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