As the Japanese yen continues to rise, retail investors are increasingly shorting it! With 3.61 trillion yen in short positions, a massive bet against the trend, the short squeeze alarm has been sounded.

Even as the yen has risen to its highest level in months, individual Japanese investors continue to bet on a significant rebound, steadily increasing their bearish positions. According to data compiled by the Japan Financial Futures Association and the Tokyo Financial Exchange, last week, the net short position in yen held by Japanese retail investors was estimated at approximately 3.61 trillion yen (about $23.5 billion), an increase from August. Bearish bets on the yen reached 4.41 trillion yen in July, the highest level since 2015. For a long time, Japanese retail investors have tended to adopt a contrarian strategyselling when the yen appreciates and buying when it depreciates. This contrasts sharply with overseas investors, who are eager to close their yen financing carry trades as the currency skyrockets. Hedge funds are also positioning for a further rise in the yen, with some funds betting that the dollar-yen exchange rate will fall below 150 by the end of the year. Mizuho Bank senior strategist Masayuki Nakajima stated, "If the yen continues to appreciate, these investors may ultimately be forced to close their long dollar positions." He added that this could further accelerate the yen's rise through the dollar sales triggered by their stop-loss actions. Since the beginning of this month, the yen has appreciated about 4% against the dollar, briefly surpassing the 153 mark, driven by market expectations of further interest rate hikes by the Bank of Japan and speculation that there may be a shift in domestic pension allocations, which prompted demand for the yen. The yen's upward momentum accelerated further as the breach of key levels triggered large-scale stop-loss orders. However, there are signs that as the yens pace of appreciation quickens, the confidence of retail investors is beginning to waver. Ryo Suzuki, executive director at SBI Liquidity Market, stated that retail investors initially bought during the dip when the dollar-yen rate fell from 160, but became more cautious after the exchange rate broke below 155. Although they still maintain a net long position in dollars, their buying and selling behavior has become more differentiated. Ryo Suzuki noted that compared to previously passively waiting for forced liquidations, current traders are more decisive with their stop-losses. If the yen continues to strengthen, it could still force some remaining dollar long positions to close out.