Japanese Yen: Retail flows reshape post-intervention dynamics – MUFG

MUFG notes that USD/JPY remains well below pre-intervention levels. Japanese retail traders entered the episode with a record short position in the pair and likely covered those positions during the intervention-led decline, partially offsetting official yen purchases.

Japanese retail flows and Yen intervention

"USD/JPY continues to stabilise at levels significantly lower than where we were prior to the intervention last Thursday and Friday. We remain around 6 big figures below the level when intervention probably began on Thursday, having rebounded two big figures from the intra-day low on Monday. If intervention did not take place on Monday (we can’t be sure but BoJ data suggests possibly not) the impact of this intervention has been more powerful than the intervention that took place in April/May this year or indeed any of the four previous episodes in 2022 and 2024."

"The OTC FX margin retail positioning data for June ahead of the intervention revealed a swing from yen shorts against all currencies reported combined to yen long. The yen long position was the largest since October 2023. The primary currency pair explaining this shift on a combined basis was in fact USD/JPY."

"The USD/JPY short position increased in June to a record total. The implied short USD/JPY position was USD 17.65bn which as can be seen historically is an extreme position and by some distance a record. The position is larger than the probable total size of the intervention undertaken last week."

"We can also assume that following intervention Japanese retail traders were quick to liquidate and were likely active buyers given the historic short position that was in place. So Japan’s retail sector was likely a key buyer of USD/JPY on the decline during intervention, curtailing some of the impact of the MoF’s record yen buying intervention."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)