The Japanese yen has not gained from falling energy prices, with USD/JPY still trading above 160.00 ahead of this week’s Bank of Japan policy meeting. MUFG points to the latest IMM report showing leveraged funds have built up short yen exposure since the conflict began, leaving positioning elevated as markets anticipate a fully priced 25 bps BoJ rate rise.
Short yen positions rose for a fifth consecutive week to 9 June and are almost four times higher than in late February. MUFG says this is the largest short yen position since the start of July 2024, a period that preceded heavy liquidation of yen-funded carry trades in summer 2024 after the BoJ raised rates in July 2024, followed by a Fed rate cut in September. Continued yen weakness could keep pressure on Japan to intervene again to support the currency.
Risks Of A Sharp Yen Reversal
Given the record short positioning against the yen, we see a situation ripe for a sharp reversal. With USD/JPY trading above 160.00, the market is stretched, and Japan’s core inflation recently hitting 2.8% for May 2026 gives the Bank of Japan every reason to follow through on the expected 25 bps rate hike this week. This setup is dangerously similar to the summer of 2024, when a BoJ hike triggered a massive unwind of short yen positions.
The risk is not just from the Bank of Japan, but also from the United States. Recent U.S. data, including a softer-than-expected jobs report for May 2026 and core inflation cooling to 2.5%, has increased bets that the Federal Reserve will cut rates by September. This policy divergence, with Japan tightening and the U.S. potentially easing, is historically a powerful catalyst for a stronger yen.
Intervention Risks And Hedging Strategies
We must also be vigilant for direct intervention from the Ministry of Finance if the currency’s weakness persists after the BoJ meeting. Officials have been clear that they are watching speculative moves, and any push toward the 162.00 level could easily trigger action to support the yen. The recent drop in WTI crude oil prices to near $75 a barrel has not yet helped the yen, making officials even more sensitive to the currency’s weakness.
Therefore, holding large short yen positions is incredibly risky at this moment. We believe it is prudent to protect against a sudden strengthening of the yen in the coming weeks. Traders should consider buying out-of-the-money JPY call options or USD/JPY put options to hedge or position for a significant correction.
