Taking Profit Before Tokyo Takes Aim

Gut feeling tells us it's time to remove exposure on USD/JPY.

A month ago, we added a long options structure on USD/JPY and wrote in the associated trade note that “the likelihood increases that USDJPY will trade higher and test the 2024 highs around 162.00, with the MoF likely building dry powder to buy as part of a coordinated action with the US.”

We printed highs yesterday of 161.90, with us taking profit on the call spread earlier in the day. The risk/reward of remaining long at current levels doesn’t stack up for us, especially with this morning's headline about a call between US Treasury Sec. Bessent and Japan’s Katayama, in which both countries are aligned on FX policy.

Here’s where we likely trade in the coming weeks, and the medium-term implications of such actions.