Synopsis:

ANZ argues that while USD/JPY downside is fundamentally supported, crowded short positioning and a cautious BoJ complicate outright bearish trades. Instead, they recommend using long-dated FX options to short USD/JPY more effectively.

Key Points:

• USD/JPY Stalled Despite Broader USD Weakness:
  Attempts to break into the low-142 range have been short-lived, highlighting resistance to further declines despite negative USD sentiment.

• Positioning Headwinds:
  CFTC non-commercial data shows heavily elevated net shorts in USD/JPY, limiting the immediate downside and raising the risk of position squeezes.

• BoJ Policy Still Accommodative:
  A shallow tightening path is expected, with only one more BoJ hike forecast in October. Yield differentials continue to favor USD carry over time.

• Tactical Expression via Options:
  Given these dynamics, ANZ recommends expressing USD/JPY downside via FX options, particularly:

  • Puts with 9–12 month tenors

  • Strike range: 120–130

Conclusion:

Instead of chasing spot moves, long-dated USD/JPY puts offer a cleaner, lower-convexity-cost way to position for renewed yen strength, allowing time for macro headwinds and positioning unwind to play out without risking sharp spot reversals.