The higher the yen, the shorter the retail market! The 3.61 trillion bear bet bucked the trend and gambled heavily, and an emptying alarm sounded

The Zhitong Finance App learned that even though the yen has risen to the highest level in months, Japanese retail investors are still betting that its sharp rebound will fall back and continue to increase bearish positions. According to market data compiled by the Japan Financial Futures Association and the Tokyo Financial Exchange, the net short positions in yen held by individual Japanese investors last week are estimated to be about 3.61 trillion yen (23.5 billion US dollars), up from August. The yen's bearish bet reached 4.41 trillion yen in July, the highest level since 2015.

For a long time, Japanese retail investors have been used to using a contrarian strategy — selling when the yen appreciates and buying when it depreciates. This is in stark contrast to overseas investors, who are rushing to close their Japanese yen financing arbitrage deals at a time when the yen is soaring. Hedge funds are also positioning the yen to rise further, and some funds are betting that the USD/JPY exchange rate will fall below 150 before the end of the year.

Masayuki Nakajima, senior strategist at Mizuho Bank, said: “If the yen continues to appreciate, these investors may eventually be forced to settle long positions in the US dollar.” He added that this may further exacerbate the yen's upward trend through their dollar sell-off when they stopped losses.

Since this month, the yen has appreciated by about 4% against the US dollar. At one point, it briefly rose above the 153 mark. It was driven by rising market expectations for further interest rate hikes by the Bank of Japan and the demand for Japanese yen purchases triggered by market speculation that the pension allocation in Japan may change. The yen's rally accelerated further as breaking through the key points triggered large-scale stop-loss orders.

However, there are signs that retail investors' confidence is beginning to waver as the yen appreciates at an accelerated pace.

Ryo Suzuki, managing executive director of SBI Liquidity Markets, said retail investors initially bought on dips when the dollar fell from 160 against the yen, but became more cautious after the exchange rate fell below 155. Although they still maintain a net long position in the US dollar, their trading behavior has become more fragmented.

Ryo Suzuki said that compared to the past passively waiting for forced liquidation of positions, current traders are more decisive in stopping losses. If the yen strengthens further, it may still force some of the remaining long positions in the US dollar to close.