Traders have hesitated to increase long positions in USD/JPY over the past two weeks, driven by the possibility that the BOJ could raise rates by 25 bps in December, alongside Japanese officials' resistance to a weaker currency, but the best gauge of yen enthusiasm may be on the crosses.

This initial reluctance to sell yen has shifted to outright buying of the currency as global risk sentiment deteriorates. Geopolitical concerns, particularly fears of an escalation in the Ukraine war, weighed on investor confidence on Tuesday. The Bank of New York's flow monitor is also indicating a shift into a risk-off environment. This is an unusual development following a U.S. presidential election, adding a layer of complexity.

The pivot to risk-off trading and heightened volatility is prompting renewed interest in yen crosses. GBP/JPY is bearing the brunt of a broad sell-off as investors exit long positions in the pound. GBP/JPY is trading near its lower Bollinger Band at 194.84 after setting a six-week low of 193.49. Downward momentum suggests the pair could drop to its daily cloud top at 191.77. Limited liquidity is also encouraging buyers of low-delta yen calls as equity market insurance.

For USD/JPY, the outlook is more complex. While speculation grows that the BOJ may raise rates in December, year-end funding pressures and demand for haven assets should hold the dollar above its 200-DMA at 151.88.

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(Robert Fullem is a Reuters market analyst. The views expressed are his own.)

((robert.fullem@thomsonreuters.com;))