Japanese retail investors were holding about JPY 3.61 trillion in net short yen positions as of last week, equivalent to roughly $23.5 billion, Bloomberg reported on Sept. 9, citing compiled data from the Financial Futures Association of Japan and the Tokyo Financial Exchange.
The position increased from August. In July, it briefly reached JPY 4.41 trillion, the highest level since 2015.
Japanese retail traders have long followed a contrarian pattern in the currency market: selling the yen when it rises and buying it when it falls. Now that the yen has kept strengthening, those short positions are facing heavier pressure to unwind.
Masayuki Nakajima, a strategist at Mizuho Bank, said that if the yen strengthens further, some retail traders could be forced to close long U.S. dollar positions. That would mean selling dollars and buying yen, which could add to the yen’s rise.
Options positioning is also shifting toward a stronger yen. CME data showed that the most actively traded USD/JPY option on Tuesday was a November put with a strike price of 142.86. For contracts expiring by year-end, trading volume in USD/JPY puts was more than three times that of calls.
Current market bets are centered on USD/JPY falling toward 150 to 152. Some 12-month options are even positioned for a move to 140.
Wall Street, however, is still divided on the next leg for the yen. Some strategists argue that the Bank of Japan has limited room for additional rate hikes and that USD/JPY could face policy resistance near 150. Others say the yen may have more room to appreciate if the Bank of Japan signals more policy tightening and Japanese exporters accelerate the repatriation of overseas funds.
Attention is now turning to the policy paths of the Federal Reserve and the Bank of Japan. If the yen keeps rising, Japanese retail investors’ large long-dollar and short-yen positions could shift from a force that had weighed on the currency to one that amplifies gains through position covering.