Japan’s CFTC data shows JPY non-commercial net positions rose to ¥-61.7K from ¥-102.1K.
This means the net position stayed negative, but moved closer to zero than the previous reading.
Speculators Reduce Yen Shorts
We are seeing a significant reduction in bearish bets against the Japanese Yen, with the net short position shrinking by nearly 40% in a single week. This indicates that major speculators are rapidly closing out their trades that were betting on a weaker Yen. This is the most aggressive short-covering we have observed since the fourth quarter of 2025.
This shift follows recent comments from the Bank of Japan, which are being interpreted as more hawkish than the market previously anticipated. With Japan’s core CPI holding firm at 3.1% year-over-year, pressure is mounting for policy normalization sooner rather than later. This is a stark contrast to the Bank’s hesitant stance we saw for most of last year.
At the same time, the outlook for the US dollar is softening, which adds fuel to this move. The latest US jobs report showed an addition of only 160,000 jobs, missing expectations and raising the probability of a Federal Reserve rate cut before year-end to over 75%. This shrinking interest rate differential makes holding short Yen positions less attractive.
For derivative traders, this signals an opportunity to reconsider being short the Yen. We believe purchasing out-of-the-money JPY calls against the dollar is a prudent strategy, as implied volatility remains relatively low compared to the sharp moves we saw in 2024. This provides a defined-risk way to position for a potential sustained Yen rally.
This sentiment shift also means that existing short futures or forward positions carry increased risk of a sudden squeeze. Looking back at the short-covering rally in late 2023, we saw how quickly the USD/JPY pair could drop several figures when sentiment turned. The current data suggests we may be at the beginning of a similar unwinding.
