Silent Reversal: Banks Abandon Yen Longs After Japan’s Political Turn

In the soft stir of global markets, a new gust of uncertainty has unsettled what seemed a steady wind: currency strategists at Deutsche Bank and Goldman Sachs have pulled back their long yen calls after the Liberal Democratic Party opted for Sanae Takaichi as its leader. The move signals that what once felt like a quiet backdrop is now a shifting stage.

For weeks, many had positioned themselves on a quiet bet: that the yen might regain strength as Japan’s economic policy stabilized. But Takaichi’s surprise victory in the LDP leadership race altered the terrain. Deutsche Bank’s FX team acknowledged that they had been long on the yen — but that the sudden political change “reintroduces too much uncertainty” around Japan’s policy path and the timing of interest rate normalization. As a result, they have shifted to a neutral stance. (This was reported in coverage of market moves following Takaichi’s election.)

Similarly, Goldman Sachs strategists have stepped away from long yen recommendations. Analysts there warn that Takaichi’s potential fiscal stimulus posture and her stance toward loosening monetary conditions could exert downward pressure on the yen. In their view, expectations of aggressive policy pivots now warrant more caution.

These reassessments come amid swift yen weakness: in recent trading, the yen plunged, with USD/JPY climbing past 150 — its biggest daily drop in months. The speed of the move underlines how fragile confidence can turn, especially when politics shifts direction.

Still, both banks stress that underlying fundamentals for the yen have not vanished. They cite potential catalysts: eventual Bank of Japan tightening, lower hedging costs in USD-JPY trades, and capital flows returning to Japanese assets. But for now, those factors are deprioritized against the immediate risks of policy ambiguity.

With long yen positions unwound, the market is watching closely how Takaichi’s government will articulate its fiscal and monetary agenda. Will she push for stimulus, lean dovish, or attempt balance? The answer may again redraw the yen’s path.

AI Image Disclaimer “Graphics are AI-generated and intended for representation, not reality.”

Sources

1. Reuters (via TradingView) 2. Investing.com 3. MarketWatch / Morningstar 4. Bloomber