By Alun John and Amanda Cooper
LONDON (Reuters) -Several large banks said they were closing bullish trade recommendations on the Japanese yen after the country’s ruling party on Sunday picked as its leader Sanae Takaichi, whose views on fiscal and monetary policy have unnerved currency investors.
Takaichi was considered to have the most expansionist fiscal and monetary agenda among the five candidates in the Liberal Democratic Party race to replace hawkish Prime Minister Shigeru Ishiba.
Traders put on “Takaichi trades” that assumed stocks would rally and Japanese government bond prices, particularly those on longer maturities, would fall.
Meanwhile, the yen crossed the symbolic 150 threshold against the dollar on Monday, heading for its biggest one-day fall in five months.
It weakened past 160 per dollar in July 2024, before Japanese authorities intervened to protect it.
BANKS CLOSE BULLISH YEN POSITIONS FOLLOWING ELECTION
Several investors and analysts had expected the yen to bounce back this year, as the Federal Reserve cuts interest rates and the Bank of Japan gradually raises them, but following Takaichi’s election, strategists at Deutsche Bank and Goldman Sachs said they had stopped recommending clients to position for the yen to appreciate.
“We went long (Japanese yen) … but are now getting out following the LDP election outcome this weekend. Sanae Takaichi’s surprise victory reintroduces too much uncertainty around Japan’s policy priorities and the timing of the (Bank of Japan) hiking cycle,” said Deutsche Bank’s global head of FX research George Saravelos in a note to clients.
A long position assumes the value of an asset will increase over time, while a short one assumes the opposite.
Goldman said it was closing its trade recommendation to go short the dollar against the yen due to markets pushing back expectations for a BOJ rate hike this month.
Much of the yen’s 5% gain this year has been based on an expectation for the Bank of Japan to raise rates. The chances of a rate rise this month collapsed to around 25% on Monday, from around 60% late last week, according to LSEG data.
RATE HIKE FORECASTS FALL AS YEN WEAKENS
Citi’s trading desk said in a note on Monday leveraged market players, such as hedge funds, were keen to sell yen and volumes were more than three times their recent averages.
They also noted there had been a big unwinding of options plays that bet on a rising yen, but that banks and corporate buyers had emerged as buyers of the Japanese currency.
Citi’s Tokyo-based currency trading desk said in a separate note they expected initial yen weakness, but did not see the currency moving much past the 150 mark.
(Reporting by Alun John, Amanda Cooper and Vidya Ranganathan; Editing by Samuel Indyk and xxxx)
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