What an overnight action! The JPY remains in the driver’s seat, and we have admittedly been partially surprised by the spillovers from the JPY to broader cross-asset moves. We are simply amidst a position squaring move, which means that you obviously need to watch out if you are already in popular trades.

If the JPY is to fully reconnect to the real-rates spread, we will likely continue to see downside in USDJPY until we reach levels just below 150.

Furthermore, our quants have noted an interesting pattern in JPY seasonality, as we historically see a pretty sharp positioning turnaround from week 29 and about a month forward in the JPY (see chart 1b). This could be related to vacation, issuance, and equity seasonality patterns, but in any case, the seasonality is likely to emphasize an already material trend in JPY here.

Chart 1: USDJPY versus real rates – more downside?

Chart 2: JPY positioning seasonality patterns