Mrs. Watanabe in Japan backs down! Retail investors stop shorting the Japanese yen and start going long, engaging in an epic showdown with Wall Street big shorts.

Notice that the "small Forex army" in Japan has heeded the government's warning and stopped betting on the weakening of the yen. Instead, they have taken a stance against professional investors who continue to bet on the further depreciation of the yen. According to analysis of data from the Japan Financial Futures Association (FFAJ) and the Tokyo Financial Exchange (TFX), the average estimated position of individual investors in yen has shifted from short to long, with a net long position in yen of approximately 500 billion yen (31 billion USD). In contrast, at the end of April, retail investors had a short position on the yen of up to 2.33 trillion yen, the highest level since the end of 2020. On Monday, the yen depreciated to 161.93 yen per US dollar, breaking through the level where the Japanese Ministry of Finance intervened to support the yen in late April, increasing the risk of intervention by the authorities once again. Despite the Bank of Japan's rate hikes, the pressure on the yen continues, and investors generally believe that the central bank's actions have been too slow and have failed to significantly narrow the interest rate spread between Japan and other major economies. With increasing concerns about government intervention, retail yen short positions have disappeared. Marito Ueda, Managing Director of Tokyo SBI FX Trade, said, "Retail investors may be expecting government intervention, and thus building positions against the trend, shorting the dollar and long on the yen." Junichi Ishikawa, Senior Market Analyst at IG Securities Ltd., also noted the shift in retail positions. "Our data shows that buying and selling positions are roughly balanced," he said. In contrast, according to the latest data from the Commodity Futures Trading Commission (CFTC) as of the week ending June 16, the combined net short position of leverage funds and asset management institutions in yen has reached its highest level since July 9, 2024, approaching the historical extreme short position reached in the previous week. This position layout by professional investors seems to ignore the repeated warnings from Japanese Finance Minister Taro Aso that the authorities are prepared to take "bold action" to suppress excessive speculative volatility in the foreign exchange market. According to NHK, Taro Aso and Japan's top foreign exchange official, Finance Ministry Vice Minister for International Affairs Atsushi Mimura, held an online meeting with US Treasury Secretary Scott Bezent on Monday. In addition, the volatility of the yen during appreciation tends to be significantly higher than during depreciation; since this year, with intervention concerns stifling the downside for the yen, the gap between "yen rally volatility" and "yen decline volatility" has further widened. This asymmetric movement of the yen creates pressure on yen funding carry tradesa strategy that essentially involves selling yen to buy higher-yield assets and earn spreads. Ray Attrill, Head of Foreign Exchange Strategy at NAB, said that the USD/JPY is currently "stuck above due to intervention risk and below due to the continued attraction of shorting the yen for carry trades." He stated, "Around the 162-163 range, we might see another 'shot fired' (referring to Japanese intervention)." Concerns about intervention have made retail traders cautious. According to data from the FFAJ, last month's retail over-the-counter (OTC) forex trading volume fell to the lowest level since February 2024, signaling that retail traders are becoming more cautious. Ayako Sera, Senior Market Strategist at Mitsubishi UFJ Trust and Banking Tokyo, said, "Even though there may be a deep-rooted expectation of a long-term weakness in the yen, Japanese retail investors may be hesitant to touch the yen because they will be the first to bear the brunt if intervention triggers a sharp increase in yen volatility."