JP Morgan warns of huge yen short positions, USD/JPY falling below 155 could trigger further appreciation

The yen has rebounded strongly recently, and the market has become more concerned about the follow-up market. (Diagram, Reuters)

[Financial Channel/Comprehensive Report] The Japanese yen has rebounded strongly recently, and the market has become more concerned about the follow-up market. JPMorgan Chase & Co. pointed out that the market may still have about 100 billion U.S. dollars (about NT$3.16 trillion) of yen short positions that have not yet been closed. If the U.S. dollar falls below 155 against the yen, it may trigger a new wave of short covering and further push up the yen.

"Bloomberg" reported that JPMorgan strategists recently issued a report stating that the recent price trend of the yen seems to indicate that there is still a "relatively large" short yen position in the market. If the U.S. dollar falls below 155 against the yen, it is not ruled out that selling will trigger more selling, resulting in accelerated liquidation of short positions, which will in turn cause the yen to appreciate more than the market expects.

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JPMorgan estimates that there are still approximately 16 trillion to 17 trillion yen in the market, equivalent to approximately 102.6 billion to 109.3 billion U.S. dollars (approximately NT$3.25 trillion to 3.46 trillion NT dollars) of short yen positions that have not yet been closed. If all relevant short positions are closed, JPMorgan estimates that the dollar against the yen may theoretically fall to the range of 142 to 146.

The report pointed out that JPMorgan issued the report warning at a time when the yen was experiencing one of the strongest appreciations since Japan and the United States jointly intervened in the currency market to support the yen at the end of July.

The dollar against the yen once rose to 160.39 last week, setting a new high since Japan and the United States jointly intervened in the foreign exchange market. However, it quickly reversed, reaching a low of 155.30, which is close to the post-intervention low of 155.23.

The market believes that the recent strength of the yen is mainly driven by two major factors, including market speculation that the Japanese Government Pension Investment Fund (GPIF) may adjust its asset allocation, and investors' increased expectations for the Bank of Japan (BOJ) to accelerate interest rate hikes. In addition, speculators began to cover their short positions in the yen, and Japanese domestic investors increased their exchange rate hedging, which further amplified the momentum of the yen's appreciation.

However, Morgan Stanley remains relatively cautious about the market outlook for the yen, believing that the current market expectations for GPIF asset allocation adjustments and BOJ interest rate hikes "seem to be excessive." Therefore, JPMorgan currently does not believe that there is a high probability that the U.S. dollar will fall sharply below 155 against the yen, and it still maintains the main forecast range of 155 to 165 for the U.S. dollar against the yen.

155 has now become a key price that the market is paying attention to. If the U.S. dollar falls below 155 against the yen, it may trigger the liquidation of more short yen positions, forming a cycle of "yen appreciation - short covering - further appreciation of the yen", further amplifying currency market fluctuations.

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