Expert: If Iran conflict intensifies, consider shorting the USD/JPY

The CEO of London-based asset management firm Eurizon SLJ Capital, Stephen Jen, stated that if the conflict in the Middle East escalates, investors should short the dollar against the yen.

As global assets are being sold off, the yen may attract safe-haven inflows, prompting domestic Japanese investors to repatriate funds. This could reverse the current trend: the yen has been weakening due to Japan being a net energy importer, and the surge in oil prices triggered by the Iran war is exacerbating inflation concerns.

“I believe shorting the dollar against the yen is my most favored trade, as I think the top is near,” he said in an interview.

Since the outbreak of war on February 28, the yen has dropped 2.6% against the dollar. On Friday, the yen fell below the key level of 160 yen to the dollar. Traders have been closely watching this threshold, as Japanese financial authorities intervened near this level in 2024 to support the yen.

Jen noted that while the dollar will strengthen against most currencies if the conflict escalates, Japan’s situation may be different. He pointed out that the scale of overseas assets held by Japanese investors is roughly equivalent to 90% of the country’s GDP, and if the war triggers a global sell-off, it would prompt these investors to invest domestically, thereby boosting the yen.

Jen is known for his “dollar smile” theory, which posits that the dollar strengthens when the U.S. economy is either experiencing strong growth or is in deep recession.