JPMorgan strategists, including Junya Tanase/), wrote that "recent price action appears to corroborate our view that a relatively large JPY short position may still be outstanding." They cautioned that if dollar-yen drops below 155 per dollar, "the risk cannot be ruled out that selling could beget further selling and drive a larger-than-expected yen appreciation."
According to the bank, outstanding bearish yen positions total about ¥16 trillion to ¥17 trillion, with the ¥16 trillion figure corresponding to $102.6 billion. In a full unwind scenario, they say dollar-yen could, at least in theory, shift into a 142-146 range. Even so, they add that expectations around both the Government Pension Investment Fund and the Bank of Japan "look a bit excessive," and they currently do not assign a high probability to the pair moving materially below a 155-165 range.
The note follows a sharp yen rally of a magnitude last witnessed when Japan and the US jointly intervened in late July to bolster the currency. Earlier this week, dollar-yen ran up to 160.39 before reversing to 155.30, putting it just shy of the 155.23 post-intervention low. Market watchers say the latest surge drew energy from speculation about a potential GPIF portfolio shift and rising bets on faster BOJ rate increases.
Through market twists, steady contributions matter more than timing, so download the free Always Be Buying E-Book
They add that these catalysts were amplified by short-covering in speculative yen positions and by hedging from domestic investors, and that dynamic heightens the chance that additional gains would compel more bearish positions to be unwound. For anyone tracking the move, the 155 level and how sentiment evolves around GPIF and BOJ expectations are the key markers now that JPMorgan's base case still centers on a 155-165 range.
