It’s remarkable how quickly speculative positioning in the Japanese YEN has shifted.
In July last year, speculators were at record net SHORT levels (highest on record, even higher than in mid-2007). Then, at the end of that month, the BoJ tightened policy rates by 15bps (from the range of 0%-0.1% to 0.15%-0.25%) while, more importantly, Governor Ueda signalled in the post-meeting press conference that: “neutral is some way off” (i.e. there’s more BoJ tightening to come*).
In response, the YEN appreciated sharply, derailing risk assets/global equities (in August 2024) and SHORT YEN positioning began to unwind. This was a distinct mood shift amongst YEN traders. Since the start of Abenomics in late 2012, the YEN had depreciated from around 78/80 to the USD to around 162 by mid July last year. Now it’s back at around 144 (having been as strong as 140/141 in the past 6 months).
Interestingly, though, whilst the YEN has strengthened by around 20 handles (i.e. approx. 12.5%), positioning has moved much more dramatically. Net speculative LONG positioning, for example, has swung from record net SHORTs to record net LONG positioning by week 17 this year. At the same time, the share of open interest (i.e. contracts) in JPY which are long positions peaked at 83% in May (highest on record, and similar to record highs in February 2004). That was also a dramatic shift from 12 months ago (FIG 2).
When market participants are (pretty much) all facing in the same direction, though, opportunities to make money appear (i.e. by taking the opposite side of the trade). That’s especially the case, if there’s a brewing and supportive macro narrative, which in this instance, is arguably the case: The Japanese economy already appears to be struggling with its marginally higher interest rates (see forthcoming SHORTview publication for further detail).
FIG 1: JPYUSD vs. net speculative LONG/SHORT positions (thousands)
* with a further 25bps hike then happening at the end of January 2025
FIG 2: JPYUSD speculative LONG positions as % of open interest vs. JPYUSD
