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  • Leveraged funds and asset managers have increased their bearish Japanese yen (JPY) positioning. The JPY short is the biggest net position for leveraged funds.
  • USD/JPY has traded sharply higher this year, recently to a 30+ year high. The main drivers have been excessive FX carry trade demand and Japanese investment heading abroad. CME Group data on option strikes is balanced between both upside and downside demand in USD/JPY.
  • The FX volatility curve using CME Group options data suggests investors remain relatively calm, as they have throughout 2024.

From early January to late April, USD/JPY rallied from about 140 to just above 160, or roughly 14%. Since then, USD/JPY has traded as low as ~152 and has now rallied back to a 30+ year high near 161.  

Leveraged funds have materially ramped up short JPY exposure, increasing net shorts to -113.8k contracts from -84.7k contracts (Chart 1). Beyond JPY, leveraged funds have increased short EUR, CHF and CAD positioning, and increased net GBP longs.

Meanwhile, asset managers have also become more bearish JPY, increasing short JPY net exposures to -85.6k contracts from -80.7k contracts (Chart 2). They are bearish all other currencies ex-EUR, with the big jump in CAD net shorts standing out.

Macro hive take: Although USD/JPY has risen sharply this year, it is difficult to initiate fresh longs at current levels. This is due to the heightened possibility of further intervention to resist JPY weakness. Nonetheless, we like to buy dips in USD/JPY, especially if it revisits the Q2 lows near 152. The positive carry in favor of the USD, which has been a big driver of USD/JPY upside this year, is likely to remain attractive in the coming weeks and months. Additionally, Japanese investors are likely to continue investing abroad while reinvesting earnings, too.

Option strikes

Investors see USD/JPY upside and downside as balanced. According to CME Group data on option strikes:

  • There is good-sized net demand for USD/JPY calls solidly between 158 and 165 (Chart 3).
  • In contrast, there is also material net demand for USD/JPY puts between 155 and 148.

What to watch: The next Bank of Japan and Federal Reserve rate decisions (both on July 31) will be key for USD/JPY, as will be the U.S. jobs report on July 5. They likely dictate the direction of U.S. rates for the summer. U.S. CPI on July 11 will also be key, as will PPI the following day, which will set up the PCE report on July 26.

FX investor risk appetite

CME Group has a range of FX volatility data to help investors track the level of volatility. We can also use FX volatility data to determine investor risk appetite. We find the shape of the FX volatility curve useful in this regard. When shorter-dated FX implied volatility is higher than longer-dated volatility, this suggests investors are worried or in panic mode. In contrast, when shorter-dated FX volatility is lower than longer-dated volatility, this suggests investors expect calm markets. The latest data finds:

  • The FX volatility curve remains steeper than throughout most of 2023, suggesting investors remain calm. This is likely because economic growth has stabilized and conviction remains that easier central bank policy is coming this year (Chart 4).
  • The move aligns with CME Group CVOL volatility indices, which have followed a similar dynamic to trade near year lows.
  • Outside FX, equity volatility remains historically low, while rates volatility remains high.


The opinions and statements contained in the commentary on this page do not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs. This content has been produced by Macro Hive. CME Group has not had any input into the content and neither CME Group nor its affiliates shall be responsible or liable for the same.


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