As the yen rises, Japanese retail traders are increasing short positions, and $235 billion in short bets could fuel further upside.

Bloomberg aggregated data from the Japan Financial Futures Association and Tokyo Financial Exchange shows that as of last week, Japanese individual investors held a net short yen position of approximately 3.61 trillion yen (about $23.5 billion), a further increase from August. This size hit 4.41 trillion yen in July, the highest level since 2015. Japanese retail investors have long followed a contrarian trading pattern: selling when the yen rises and buying when it falls. But as the yen continues to strengthen, these short positions are facing growing pressure to close out. Masayuki Nakajima, a strategist at Mizuho Bank, noted that if the yen appreciates further, some retail investors may be forced to close their long dollar positions—selling dollars to buy yen, which would amplify the yen’s rally. Bets on yen strength in the options market have also heated up. CME Group data shows the most actively traded USD/JPY option on Tuesday was a put option expiring in November with a strike price of 142.86. The volume of USD/JPY put options expiring by the end of the year is more than three times that of call options. The market is largely betting USD/JPY will fall to 150–152, with some 12-month options even pricing in a drop to 140. Meanwhile, Wall Street remains divided on the yen’s outlook. Some strategists argue the Bank of Japan (BOJ) has limited room for further rate hikes, and USD/JPY may face policy resistance after approaching 150. Other institutions counter that if the BOJ signals additional policy tightening, paired with Japanese exporters accelerating repatriation of overseas funds, the yen still has room to rise. Current market focus is shifting to the policy paths of the Federal Reserve and the BOJ. If the yen continues climbing, Japanese retail investors’ massive long-dollar and short-yen positions could shift from a force that “suppresses the yen” to a catalyst driving the currency higher as they close out their trades.