USD/JPY to the downside remains a favored trade to capitalize on the dollar's demise amid escalating trade tensions and slowing growth. This is particularly evident in the futures market, where long positions on the yen continue to grow. The latest CFTC report shows net yen longs hitting a record high as asset managers further expand their holdings in the Japanese currency. Futures open interest is at its highest point since mid-March.

Options and leveraged accounts display a less bullish stance on the yen, potentially due to spot prices hovering near the 2024 low and the possibility of the Bank of Japan shifting its tightening bias should this week's trade talks fail to yield favorable results. Reports on Monday suggest that the BOJ intends to maintain its tightening bias at next week's policy meeting, potentially shielding the government from criticism by U.S. President Donald Trump about yen weakness. However, this outlook could change if discussions between Finance Minister Katsunobu Kato and Treasury Secretary Scott Bessent this week include revaluing the yen—an unlikely scenario that could prompt the BOJ to lower growth projections. Tokyo CPI and April PMIs will offer a snapshot of the economy this week.

Trend-following momentum continues to favor USD/JPY bears, though the heightened uncertainty brings risks of a sharp reversal above short-term moving averages. Key downside levels to watch are the psychological threshold at 140 and the 2024 low of 139.58; a close below the latter could lead to testing the 200-week moving average at 138.
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(Robert Fullem is a Reuters market analyst. The views expressed are his own.)