JPY Soars as US Rate Volatility Favors Safe-Havens

According to BNY's David Tam, rising US rate volatility should favor safe-haven currencies like the Japanese Yen. The Yen has historically appreciated during such episodes due to its unique properties among low-yielding funding currencies.

Tam points out that the Commitment of Traders (IMM) data shows near-historic levels of net short positioning in non-commercial futures positions for both the CHF and JPY. This positioning divergence could create a trading opportunity, with real money investors preparing for defensiveness and fast money investors leaning the other way.

The Yen's steady decline since April 2025, when trend-following traders began unwinding their historic net longs, has led to heavy speculative shorts in the currency. A sharp squeeze is possible if these positions are forced to unwind, which would make the JPY a cleaner trade for investors expecting its appreciation.