The correction of UST yields from the peak reached in January, alongside the upside move in JGB yields, pushed USDJPY to levels not seen since October at c.146.50. The Japanese ten-year yield trades at levels not seen since the Global Financial Crisis in 2008, helped by the shift in BoJ monetary policy last year and by expectations the central bank will continue hiking rates going forward. The JPY has been one of the most sensitive major currencies to US yield moves in recent years. Narrowing yield spreads between the US and Japan have been key in recent months and should continue to back a stronger JPY in the long run. Nonetheless, in the short term, we think the correction of UST yields and USDJPY has been overextended. Growing uncertainty on the US Administration policies, suggests the Fed will prolong the current pause on Wednesday while upgrading its inflation projections. This should help to provide some short-term support to the UST yield curve and the USD. One key driver of the recent JPY appreciation has been hot money flows. Speculative positioning in JPY has shifted from the most bearish positioning since 2007, reached in April 2024, to the most bullish positioning on record. Given our expectations for the BoJ and the Fed this week, and the stretched technical levels, we think there should be some short-term upside potential for the pair.