The yenmageddon short squeeze

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The yen trade explosion occurs in early August. But the damage it caused has yet to fully emerge. A good indication of the severity came from the Commodity Futures Trading Commission on Friday.

The US regulator collects weekly data on positions in various currency futures contracts, broken down by type of reporting entity. Obviously, it’s not comprehensive—and offsetting positions can change the picture dramatically—but the CFTC’s “non-commercial trader” category is a decent indicator of the overall positioning of investment funds in various financial markets.

Data released Friday night shows a pretty massive swing in Japanese yen futures.

Bloomberg’s view is that hedge funds have “turned bullish” on the Japanese yen, which is a bit like saying they turned bullish on GameStop in January 2021.

People are certainly more bullish on the Japanese yen now, but this looks more like a primal scream of margin calls, short covering and busted P&Ls for us. That’s a swing of nearly 200,000 contracts in a few weeks, leaving non-commercial traders long yen futures for the first time since 2021.

Where do things go from here? No idea! But here’s Goldman Sachs’ note on last week’s yen trade, which the bank’s analysts have kindly made public for FT Alphaville readers.