Japanese retail investors increase yen short positions against the trend, facing potential liquidation risk if the exchange rate continues to rise

(1) Although the yen has risen to its highest level in several months, Japanese retail investors continue to increase their net short positions on the yen. According to data from the Japan Financial Futures Association and the Tokyo Financial Exchange, last week the net short positions held by retail investors were estimated at 3.61 trillion yen (23.5 billion US dollars), higher than August levels (in July it reached 4.41 trillion yen, the highest since 2015). (2) Japanese retail investors have always preferred to act against the trend, selling when the yen is strong and buying when it is weak. This contrasts sharply with foreign investors, who have recently closed yen carry trades due to the yen’s surge, and hedge funds, which are building positions in anticipation of further yen appreciation. Some funds are even betting that the US dollar/yen exchange rate will fall below 150 before the end of the year. (3) Masayuki Nakajima, senior strategist at Mizuho Bank, has warned that if the yen continues to appreciate, retail investors may be forced to close their long dollar positions, and such stop-loss-driven selling could further fuel the yen’s rise, creating a self-reinforcing cycle.