Yen Shorts Threaten Unwinding Wave as Dollar-Yen Nears Critical Level
The yen has staged a dramatic rebound against the dollar this week, closing in on the critical 155-yen-per-dollar level.
Strategists at JPMorgan Chase warn that if the dollar-yen breaks below 155, the market's massive yen short positions, estimated at approximately $102.6 billion, could be forced to unwind in a concentrated wave, further amplifying the yen's gains and potentially driving dollar-yen down to the 142-146 range.
The JPMorgan strategy team, led by Junya Tanase, notes that recent price action confirms their assessment of a large pool of yen short positions remaining in the market. 'We cannot rule out the risk that selling begets more selling, pushing the yen's appreciation beyond expectations,' they wrote.
Market participants speculate that Japan's Government Pension Investment Fund may adjust its asset allocation and that Bank of Japan rate hikes are expected to continue building. However, JPMorgan believes market expectations surrounding GPIF and the Bank of Japan 'appear somewhat overdone' and does not view a significant break below 155-165 for dollar-yen as a high-probability event.