JPMorgan warned on Sept. 4 that if USD/JPY falls below 155, roughly 16 trillion to 17 trillion yen in outstanding short-yen positions, equivalent to about $102.6 billion, could be unwound in a concentrated move, adding to yen strength and theoretically pushing the pair down to the 142-146 range.
Strategists including Junya Tase said recent price action suggests large yen short positions may not have been fully cleared. If USD/JPY breaks through 155, the risk that "selling begets more selling" would rise, and the yen’s advance could exceed market expectations.
USD/JPY touched 160.39 earlier this week before quickly pulling back to around 155.30. The yen is on track to gain about 2.7% against the dollar this week, which would mark its best performance since July.
JPMorgan said several factors have been driving the yen higher, including stronger expectations for further Bank of Japan tightening, speculative short covering, and increased FX hedging demand from domestic Japanese investors. The swap market is now almost fully pricing in a 25-basis-point rate hike from the BOJ this month and sees the probability of another hike in December at about 80%.
Even so, JPMorgan said market expectations for moves by the BOJ and for asset allocation adjustments by Japan’s Government Pension Investment Fund, or GPIF, may be excessive. The bank does not see a sharp break below the 155-165 range in USD/JPY as the most likely outcome.
At the same time, Japan’s top foreign exchange official Atsushi Mimura said he was "not satisfied" with current yen moves and added that Japan is prepared to continue responding to volatility in the FX market. His comments have added to attention on the risk of official intervention.
On the dollar side, Bank of America is currently biased toward short USD/JPY with a target of 149. TD Securities has kept its moderately bearish view on the dollar for the rest of this year. Markets are now waiting for U.S. nonfarm payrolls data and CPI figures due next week to assess the Federal Reserve’s policy path.