Bearish yen positions have seen a significant reduction after Japanese authorities intervened to support the currency, underscoring how official action is unwinding a crowded trade.
Leveraged funds trimmed net short yen positions in the week through May 5, according to Commodity Futures Trading Commission data. They now hold net short positions of 61,340 contracts, worth about $4.9 billion — the smallest in a month. Asset managers also cut short positions by 13,839 contracts to 10,653.
“Intervention risk and strong official warnings made it unattractive to chase weakness near 160,” said Stefan Rittner, senior portfolio manager at Allianz Global Investors, who is neutral on dollar-yen. Still, “persistent structural headwinds limit the case for a sustained yen rebound despite the cheap valuation,” and further intervention risk should rise again if dollar-yen approaches prior levels.
The pullback followed multiple rounds of intervention by Japanese authorities starting April 30 and through the Golden Week holiday, totaling as much as about ¥10 trillion, according to a Bloomberg analysis of Bank of Japan accounts. While refraining from confirming the intervention, Japan’s top currency official, Atsushi Mimura, said authorities are prepared to respond on all fronts to speculative moves, adding that International Monetary Fund rules don’t limit how often intervention can be conducted.
The yen touched a 10-week high of ¥155.04 per dollar on Wednesday before paring gains. While intervention has forced a shakeout in yen shorts, it has done little to change the underlying narrative, analysts say. That raises the risk of renewed bearish positioning and further intervention if the currency drifts back toward ¥160 per greenback.
Japan’s currency fell as much as 0.2% to ¥157.06 per dollar on Monday.