Japanese retail investors are crazy about shorting the U.S. dollar! Net short positions soared to 2.79 trillion yen, the highest level in history since 2008
Japanese retail investors' net short position on the U.S. dollar surged to the highest level in nearly two decades last month, amid widespread speculation that Japanese officials may intervene again to boost the yen's exchange rate. According to data from the Financial Futures Association of Japan, retail traders' net short positions in the U.S. dollar more than tripled from last month to 2.79 trillion yen (approximately $17.2 billion), the largest in history since records began at the end of 2008. While these bearish bets may also involve other currency pairs, the size of the yen-related open interest suggests they are primarily concentrated in Retail traders dominate the liquidity of Tokyo's spot foreign exchange market, and the direction of their positions will largely determine whether the effects of the Japanese government's intervention in the foreign exchange market can be sustained. Since the beginning of this year, the Japanese yen has performed last among G10 currencies. However, as retail investors have bet on a weakening dollar on a large scale, this may mean that Japan's official operation of selling dollars and buying yen may have less market impact than expected. Hideki Shibata, senior interest rates and foreign exchange strategist at Tokai Tokyo Intelligence Laboratory, said that when the Japanese authorities intervene, "these retail traders will sell yen to cover their positions," thus pushing the U.S. dollar against the yen exchange rate back up in reverse. He pointed out that "in the low range, Japanese importers are also lurking a large amount of US dollar buying demand." This type of position structure may make the Japanese Ministry of Finance take a more cautious attitude towards entry intervention. Japan's Ministry of Finance has invested 11.73 trillion yen in the month to May 27 to support the yen exchange rate. However, since hitting a ten-week high on May 6, the yen has still weakened by more than 4%.