Yen to fresh multi-year lows - Scotiabank

Analysts at Scotiabank noted that JPY is weak and underperforming its G4 peers along with most of the G10 currencies.

Key Quotes:

"The broader USD remains a dominant driver, pushing JPY to fresh multi-month lows at levels last seen since early June.

The most recent weakness appears to be driven by momentum and positioning as we note the decisive turn in yield spreads and the JPY-positive 10bpt narrowing in the 2Y U.S.-Japan yield spread from Monday’s high above 120bpts.

JPY has long been one of the largest held net longs according to CFTC sentiment data.

The JPY bulls are clearly vulnerable in the current environment and their liquidation is likely exacerbating what had begun as a fundamentally-driven move.

Another vulnerability has arisen in the options market as we note the continued rise in measures of implied volatility and the commensurate rebuilding in the premium for protection against JPY strength. The exhaustion of the momentum/positioning-driven decline in JPY may see a violent reversal."