JPMorgan Chase Warning: 155 Key Level for Yen Short Squeeze, USD/JPY Could Fall to 142-146

BlockBeats News, September 4th, as the Japanese Yen strengthened and approached the 155 level, J.P. Morgan warned that if the US Dollar falls below 155 against the Yen, around ¥160-¥170 trillion Yen, equivalent to approximately $1,026 billion in USD, of outstanding Yen short positions may be forced to close, further driving the Yen's appreciation. The Dollar-Yen pair could theoretically drop to the 142-146 range.

J.P. Morgan strategists, including JPY trader Tazawa Yukio, stated that recent price action indicates that a large-scale Yen short position may not have fully unwound yet. Once the Dollar-Yen pair breaks below 155, the risk of "selling begets more selling" will increase, and the Yen's appreciation could exceed market expectations.

Currently, the Dollar against the Yen touched 160.39 earlier this week, then quickly retreated to around 155.30. The Yen is poised to rise against the Dollar by about 2.7% this week, marking its best performance since July.

The Yen's strength has been driven by multiple factors, including the market's increasing expectations of further rate hikes by the Bank of Japan, speculative short covering, and increased demand for exchange rate hedging by Japanese domestic investors. The forward market is currently pricing in almost fully the market's expectation of a 25 basis point rate hike by the Bank of Japan this month and believes there is an approximately 80% probability of another rate hike in December.

However, J.P. Morgan believes that the market's expectations of the Bank of Japan's actions and GPIF asset allocation adjustments may be exaggerated and does not see a significant probability of the US Dollar falling significantly below the 155-165 range.

Meanwhile, Japan's top foreign exchange official, Jun Murai, expressed "dissatisfaction" with the current Yen movement and stated that Japan is prepared to continue to address market volatility, further raising concerns about the risk of official intervention in the market.

On the Dollar side, Bank of America is currently leaning towards shorting the Dollar against the Yen, with a target of 149; while Nomura Securities maintains a mildly bearish view on the Dollar for the remainder of the year. The market is eagerly awaiting US non-farm payroll data and next week's CPI data to assess the Federal Reserve's future policy direction.