Japan's yentervention last week was the 2nd largest in history ($85BN) second only to Fukushima
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And this is happening just days after Japan and the US spent an estimated $88 billion trying to stop the yen from falling. Combined net short positions from asset managers and leveraged funds hit -205,000 contracts as of July 28, just short of the 2024 record. Hedge funds alone are the most bearish since 2007. The intervention happened, and traders went right back to shorting. Source: Bloomberg, Bull Theory
Leveraged funds are now holding their largest short position in the Japanese yen since 2017. They're borrowing ultra-cheap yen to buy higher-yielding assets, particularly U.S. technology stocks, making the yen carry trade more crowded than it has been in years. The risk is what happens if the yen suddenly strengthens. A sharper yen forces investors to buy back the currency to repay their loans, triggering rapid deleveraging across global markets. We've seen this before. In August 2024, the yen surged roughly 14% against the U.S. dollar, sparking a violent unwind of carry trades. More than $6 trillion was erased from global equity markets, and panic selling reached levels not seen since the COVID crash. Today, speculative positioning is even more extreme. That doesn't guarantee another unwind—but it does mean the market is more vulnerable if the yen stages another sharp rally. Source: The Macro Paper
The Korea Exchange has already triggered emergency circuit breakers nine times this year—compared with just 15 over the previous 26 years. The concentration of Samsung Electronics and SK Hynix, which account for more than half the index, combined with a boom in leveraged ETFs, has amplified market swings. Assets in leveraged ETFs have jumped from $5 billion to over $40 billion in six months, with retail investors holding nearly 90% of them. In response, regulators and the central bank have introduced measures including ETF exposure limits and higher trading costs to reduce volatility. Source: Bull Theory