As the yen continues to rise, retail investors are becoming increasingly bearish! With 3.61 trillion yen in short positions, a contrarian gamble is underway, and the short squeeze alarm has been sounded.

Even as the yen has risen to its highest level in months, Japanese retail investors are still betting on a sharp rebound to reverse, continuing to increase their bearish positions. According to data compiled by the Japan Financial Futures Association and the Tokyo Financial Exchange, the estimated net short position in yen held by individual investors in Japan last week was around 3.61 trillion yen (approximately 23.5 billion USD), an increase from August. Yen bearish bets peaked at 4.41 trillion yen in July, the highest level since 2015. For a long time, Japanese retail investors have been accustomed to taking contrarian strategiesselling when the yen appreciates and buying when it depreciates. This stands in stark contrast to overseas investors, who are eager to close out yen carry trades as the yen surges. Hedge funds are also positioning for further gains in the yen, with some funds betting that the USD/JPY exchange rate will fall below 150 by the end of the year. Masayuki Nakajima, a senior strategist at Mizuho Bank, stated, If the yen continues to appreciate, these investors may eventually be forced to close their long dollar positions. He added that this could further exacerbate the yen's upward momentum through their dollar selling actions triggered by stop-losses. Since the beginning of this month, the yen has appreciated approximately 4% against the dollar, briefly breaking above the 153 level, driven by heightened market expectations for further rate hikes by the Bank of Japan and speculation about potential shifts in domestic pension allocations that have increased demand for yen. The yen's rally accelerated further as breaching key levels triggered mass stop-loss orders. However, there are signs that as the pace of the yen's appreciation quickens, retail investors' confidence is beginning to waver. Ryo Suzuki, executive director at SBI Liquidity Market Co., noted that retail investors initially bought on the dip when the USD/JPY fell from 160, but became more cautious after the exchange rate dropped below 155. Although they still maintain a net long position in dollars, their buying and selling activities have become more differentiated. Ryo Suzuki stated that compared to past behavior of passively waiting for forced liquidations, current traders are more decisive with their stop-losses. If the yen strengthens further, it could still force some remaining long dollar positions to be closed out.