RBC: YEN’s Recent Rally may be Due to Massive Unwinding of Short YEN Positions

RBC said the yen’s recent rally may have been due to a massive unwinding of short yen positions, which seemed a more plausible explanation than a possible policy change by the Bank of Japan at this month’s meeting.
Adam Cole, the bank’s chief currency strategist, said that July “is already the most bullish month among analysts on the timing of adjustments to the yield curve control (YCC) policy,” and if there is a major shift in this expectation, Japanese government bond yields will be at Trading near the current cap under the YCC program.
The possibility of the BOJ continuing to widen the YCC range is not ruled out, but if that happens, USD/JPY is not in for a knee-jerk decline either.
The risk is a dovish reaction from JGBs and a quick shift in the market view that Fed rate hikes will be positive for the pair.