Yen Bears Exhausted: USD/JPY Pairs Edges Higher Amid Volatility

The USD/JPY pair saw a slight rebound on Monday, September 14, amid volatility in Asian trading hours. The pair recouped most of last Friday's losses and currently trades around 154.15, up roughly 0.45%. This comes after two historic short squeezes in the yen have largely unwound extreme short positions.

According to CFTC data released on September 11, net speculative positions in the yen shifted from approximately 92,000 contracts short to nearly 11,000 contracts long as of the week ending September 8. This sharp reversal is unprecedented, with only one previous instance occurring back in 1986.

Historical trends suggest that sharp reversals in speculative positioning are often followed by further yen strength. In 15 historical instances where net speculative yen positions improved by more than 40,000 contracts in a single week while remaining in net short territory, the USD/JPY pair declined in the subsequent two weeks on 14 occasions.

Despite this trend, some institutions remain bullish on the Japanese yen. Deutsche Bank expects the USD/JPY exchange rate to fall to around 135 by the end of September 2026, citing Japan's economic resilience and inflation stickiness as key drivers. The Royal Bank of Canada forecasts a short-term appreciation of the U.S. dollar due to its high yield advantage and safe-haven status.