Societe Generale strategists underline that USD/JPY upside remains intact despite strong Japanese data, with 165 cited as a new line in the sand. They recall July 2024’s painful squeeze for Japanese Yen (JPY) shorts and warn that markets are again challenging the Ministry of Finance. Potential Fed mispricing and Bank of Japan (BoJ) rate hikes could trigger a sharp short‑covering move in the Yen.

Yen shorts recall 2024 turmoil

"July carries ugly memories for Yen shorts and those investors with memories of how events turned against them in the summer of 2024 will be inclined to tread carefully against another backdrop of aggressive bearish positioning."

"FX intervention at 161.95 (new line in the sand at 165?) caused the abrupt unwinding of the carry trade two years ago, exacerbated by procyclical deleveraging and margin increases."

"The BoJ only weeks ago unsuccessfully tried to steer USD/JPY away from 160 by selling dollars in late April but conversations with the US Treasury and the marked accumulation of Yen short positions (33.9% of OI vs -52% in July 2024) inevitably beg the question ‘what if’?"

"If markets are wrong and the Fed does not tighten, the short covering squeeze should provide breathing space for the Yen."

"Upside intact as investors brush aside strong Tankan, 165 level mooted as new line in the sand. MoF intervention not ruled out on Friday (US holiday). Support 161.90, resistance 163.70."

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