JPY Squeeze Imminent Amid Record Shorts

David Tam of BNY believes rising U.S. rate volatility will favor safe-haven currencies, with the Japanese Yen historically benefiting from such episodes. Heavy speculative JPY shorts add another catalyst, as appreciation could force position unwinds and trigger a sharper squeeze.

The Yen's unique property among low-yielding funding currencies is that historical bouts of increasing rate vol tend to correlate with JPY appreciation while other funding currencies tend to depreciate.

According to the CFTC’s Commitment of Traders (IMM) data, near-historic levels of net short positioning of non-commercial futures positions in the CHF and JPY have been observed. The JPY has seen a steady march down since April 2025, when trend-following traders such as CTAs and other momentum traders first began unwinding their historic net longs in the wake of Liberation Day.

This positioning divergence could create a trading opportunity: With real money investors preparing for defensiveness and fast money investors leaning the other way, markets could be vulnerable to a sharp squeeze. For investors who expect JPY to appreciate, the positioning divergence argues for upside in both JPY and CHF.