The Japanese yen is having a truly awful year, and the people with the biggest wallets on Wall Street are betting it gets worse. Leveraged funds have built up net short positions on the yen approaching 138,000 contracts, according to CFTC data, the most bearish positioning since 2007.
The numbers behind the yen’s slide
The yen has weakened to roughly 162 against the US dollar, a level it hasn’t touched since 1986. Japan’s benchmark interest rates sit around 0.5% to 0.75%, while US Treasuries offer approximately 4%. That gap of roughly 3.25% creates an almost irresistible setup for carry traders, who borrow in a low-rate currency and park the proceeds in higher-yielding assets.
Goldman Sachs has raised its USD/JPY forecast to 165, suggesting the bank sees more pain ahead for yen bulls. Options market data reflects similar conviction, with pricing suggesting a 72% likelihood of the pair reaching that level by mid-2027.
Japan’s intervention playbook looks exhausted
During April and May 2026, Japan spent over $73.5 billion intervening in foreign exchange markets to prop up the yen. The result? The yen kept falling anyway.
The Bank of Japan has been inching rates higher, moving from negative territory to the current 0.5% to 0.75% range. But that pace looks glacial compared to where US rates sit. Previous rounds of Japanese FX intervention, notably in 2022 and 2024, followed a similar pattern. Brief yen rebounds, followed by renewed selling pressure.
Why crypto traders should pay attention
In August 2024, a surprise Bank of Japan rate hike triggered a violent yen rally that sent shockwaves through global markets. Bitcoin dropped sharply alongside equities as leveraged positions got liquidated across asset classes.
With short positioning at levels not seen since 2007, the trade is increasingly crowded. A few catalysts could trigger a reversal: an unexpected Bank of Japan rate hike, a sudden deterioration in US economic data that pulls Treasury yields lower, or verbal intervention that proves more credible than past efforts. Any of these could force a rapid short-covering rally in the yen, creating cross-asset volatility that tends to hit crypto markets particularly hard given their sensitivity to leverage and liquidity conditions.