JPN Carry Trade Loses Steam as CFTC Data Indicate Mean-Reversion Bounce for USD/JPY

A recent shift in market sentiment is evident from Japan-related CFTC data. The figures show that JPY non-commercial net positions declined to ¥72k from ¥120.4k previously, indicating a reduced stance in yen positioning.

This drop of over 40% points to the unwinding of the yen carry trade slowing down. As a result, immediate upward pressure on the currency has eased.

The CFTC data release also hints at a potential mean-reversion bounce for USD/JPY in the coming weeks. Historically, when speculative JPY longs drop by over 40,000 contracts in a single week, USD/JPY experiences a mean-reversion bounce of 2% to 4% over the following month.

The persistent yield gap between Japan's and US' 10-year Treasury yields is another factor supporting this view. The U.S. 10-year Treasury yield hovers near 3.8%, while Japan's benchmark remains at just 0.95%.