Japanese retail investors' short positions on the US dollar hit the highest level since 2008 last month, reaching 2.79 trillion yen.

Japanese retail investors’ bearish sentiment toward the US dollar has risen to its highest level in nearly twenty years, raising doubts in the market about the effectiveness of government intervention in the foreign exchange market.

According to data from the Japan Financial Futures Association on Wednesday, last month Japanese retail investors’ net short positions in the US dollar jumped more than fourfold from the previous month, reaching 2.79 trillion yen (about $17.2 billion)—the highest level since records began at the end of 2008. Given the large size of yen-related positions, analysts believe these short positions are mainly concentrated in the USD/JPY trading pair.

Retail investors dominate the Tokyo spot forex market, and their positioning is crucial to whether government intervention can effectively support the yen. The yen has consistently underperformed other G10 currencies this year, and retail investors have heavily bet on a weaker dollar. This means that official dollar selling intervention may be less effective than intended.

Hideki Shibata, Senior Interest Rate and Forex Strategist at Tokai Tokyo Intelligence Laboratory Co., pointed out that once authorities intervene in the market, these retail investors will be forced to sell yen to close their positions, thereby pushing the USD/JPY exchange rate back up and offsetting the effect of the intervention. He also said that, because there are large unfilled buy orders for the dollar at lower price levels from local importers, this positioning might make Japan’s Ministry of Finance more cautious about intervening.

Japan’s Ministry of Finance spent 11.73 trillion yen supporting the yen during the month ending May 27, but the yen’s exchange rate was still more than 4% lower than its ten-week high hit on May 6. The rapid accumulation of retail short positions further highlights the limitations of relying solely on official intervention to stabilize exchange rates.

Risk Warning and DisclaimerThe market involves risk, and investment should be undertaken with caution. This article does not constitute personal investment advice, nor does it take into account the specific investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, viewpoints, or conclusions in this article are appropriate for their particular situation. Investment based on this article is at your own risk.