On Friday (September 4) during Asian trading hours, the US dollar continued its decline against the Japanese yen, hitting a new low since August 4 at 155.29, approaching the price level reached during the joint intervention by Japan and the US at the end of July. The exchange rate is currently trading around 156. JPMorgan strategists warned that if the US dollar breaks below the 155 level, it could trigger a large-scale liquidation of short yen positions, accelerating the yen's appreciation. The bank estimates that there are still approximately 16-17 trillion yen (about US$103 billion) of unclosed short yen positions in the market, which, theoretically, could push the US dollar to the 142-146 range if fully liquidated.

With $103 billion in short positions looming overhead, the $155 level has become a key "trigger point."

JPMorgan Chase warns that a break below 155 for the USD/JPY pair could trigger massive short covering of yen positions, accelerating the yen's appreciation. The bank estimates there are still approximately 16-17 trillion yen (about $103 billion) in outstanding short yen positions, which, if fully liquidated, could theoretically push the USD/JPY pair to the 142-146 range. This week, the USD/JPY pair rose to 160.39 (the highest since the joint intervention at the end of July) before plunging to 155.30, nearing the post-intervention low of 155.23. Strategists point out that recent price action supports their view that a large number of short yen positions may still exist in the market, and the risk of "selling triggering more selling" is rising. This size of short positions makes the 155 level a true key "trigger point." Once the exchange rate breaks below this level, stop-loss orders and forced liquidations could surge, creating a self-reinforcing downward spiral. JPMorgan Chase estimates that if all 16-17 trillion yen in short positions were covered, it could theoretically push the USD/JPY pair down to the 142-146 range, indicating significant potential momentum. This week, the exchange rate initially surged to 160.39, a new high since the joint US-Japan intervention at the end of July, before quickly falling back to around 155.30, almost touching the post-intervention low of 155.23. This price action itself confirms the market's fragility. Strategists emphasize that recent price action further supports the judgment that "a large number of yen short positions have not yet been cleared," and any new selling could trigger a chain reaction. Therefore, the 155 level is not only technical support but also a core threshold determining the intensity of short-term volatility, and the market is highly sensitive to whether it can hold.

GPIF and the Bank of Japan's expectations are "somewhat excessive," while JPMorgan Chase holds a two-way view.

The recent yen rebound was driven by potential adjustments to the asset allocation of the Government Pension Investment Fund of Japan (GPIF) and rising expectations of interest rate hikes by the Bank of Japan. Short covering and hedging demand from domestic investors further amplified the gains. However, JPMorgan Chase believes the market's expectations for GPIF adjustments and the pace of BOJ rate hikes are "somewhat excessive," and currently does not anticipate a significant drop in USD/JPY below its assumed 155-165 range. This makes its short-term view truly two-sided—acknowledging the downside risks from short covering but not predicting a deeper, more sustained yen appreciation. JPMorgan Chase points out that the recent yen rebound was indeed driven by a confluence of factors: rising speculation about potential adjustments to the GPIF's overseas asset allocation, coupled with rising expectations of further BOJ rate hikes, attracted short covering and increased hedging demand from domestic investors, thus amplifying the appreciation momentum. However, the bank believes the market's pricing in these two themes is "somewhat excessive," and it does not see sufficient evidence to support a larger, more sustained appreciation of the yen. Based on this, JPMorgan Chase maintains its core assumption that USD/JPY will trade within the 155-165 range, exhibiting a clear two-way view in the short term—acknowledging the downside risk of short covering if it breaks below 155, but also disagreeing that the exchange rate will fall significantly below its predetermined range. In the short term, if the 155 level is breached, the exchange rate may accelerate towards the 152-154 area; if it holds, it is expected to rebound to the 157-158 area.

Summarize

JPMorgan Chase warned that a drop below 155 could trigger $103 billion in short positions in the yen, theoretically pushing it to the 142-146 range. JPMorgan stated that market bets on adjustments to GPIF investment strategies and the pace of the Bank of Japan's interest rate hikes have exceeded reasonable levels, and the bank expects USD/JPY to not continue trading below 155. USD/JPY may fluctuate in the 155-158 range in the short term, with short-covering risks and cautious expectations creating a tug-of-war. Attention should be paid to whether the 155 level is breached and to the Bank of Japan's policy signals. (USD/JPY daily chart, source: FX678) At 11:23 Beijing time, USD/JPY was trading at 156.05/06.