Speculative investors have accumulated near-record short positions on the Japanese Yen (JPY), according to UBS FX strategists. This could potentially lead to pullbacks in the USDJPY pair if US data suggests a soft landing. The Yen strengthened by 3% against the US Dollar following a drop in Treasury yields due to the US CPI report, coupled with reports of Japanese officials intervening in the market by purchasing Yen.
While UBS expects the yield differentials between the US and Japan to narrow by the end of the year, they caution against aggressively increasing exposure to USDJPY or taking out JPY-denominated loans. With speculative investors heavily short on Yen, there is a possibility of USDJPY experiencing pullbacks if US economic data continues to indicate a soft landing.
For investors currently holding short positions on USDJPY, UBS recommends taking advantage of any short-term pullbacks to reduce or exit these positions. It is advised to monitor the market closely and make informed decisions based on the evolving economic landscape.