Hedge funds turn most bearish on yen since 2007 as currency hits four-decade low
Net short positions on the Japanese yen have ballooned to roughly 146,000 contracts, reflecting a level of speculative pessimism not seen in nearly two decades.
Leveraged speculators have piled into short positions on the yen at a pace that has pushed net shorts to approximately 146,000 contracts, according to CFTC positioning data. The gap between hedge fund shorts and asset manager longs is now the widest since 2007.
A currency in free fall
The yen recently slid past 162 against the US dollar in late June 2026. That’s the weakest the currency has traded since 1986.
The culprit is familiar: interest rate differentials. The US continues to offer meaningfully higher yields than Japan, making dollar-denominated assets far more attractive to global capital.
Goldman Sachs has adjusted its forecasts accordingly, projecting USD/JPY to hit 162 within three months, 163 in six months, and 165 over the next 12 months. The bank’s derivatives analysis suggests a high probability of reaching that 165 level by mid-2027.
Why the carry trade matters beyond forex desks
The yen carry trade, where investors borrow in cheap yen and invest in higher-yielding assets elsewhere, is one of the oldest and most consequential strategies in global finance. When hedge funds are this short the yen, it typically means carry trade volumes are elevated. Investors are borrowing yen at Japan’s rock-bottom rates and deploying that capital into US Treasuries, emerging market bonds, and risk assets like equities and crypto.
We saw a preview of this dynamic in 2024 when a modest BOJ rate hike triggered a sharp reversal in global risk assets. With 146,000 net short contracts on the books, any forced unwind would be amplified by the sheer size of the bet.
The Japan side of the equation
Japan imports the vast majority of its energy and a significant share of its food. A yen at 162 means those imports cost dramatically more than they did even two years ago, translating directly into higher consumer prices.
Raising rates aggressively would strengthen the yen and ease import-driven inflation, but it would also increase borrowing costs for a government carrying one of the largest debt-to-GDP ratios in the developed world. Japanese fiscal policy and upcoming elections are adding another layer of uncertainty to an already complex monetary calculus.
What this means for crypto and risk assets
Goldman’s forecast of 165 by next year implies the carry trade stays profitable and the yen keeps weakening. That’s broadly constructive for risk assets in the near term. If US-Japan rate differentials narrow faster than expected, or if the BOJ surprises with more aggressive tightening, the reversal could pull liquidity out of risk assets rapidly.
The last time speculative positioning was this extreme, in 2007, global markets were roughly a year away from a financial crisis. With 146,000 net short contracts outstanding, any forced unwind would not send a calendar invite first.