Mars Finance News, on June 3rd, market data shows that the US dollar against the Japanese yen once broke through the 160 level (reaching a high of 160.44 before falling back to around 159.90). Meanwhile, the Nikkei 225 index first surpassed 68,000 points, rising to a high of 68,634.74 points in the afternoon, a 2.9% increase. This sensitive level coincides precisely with the psychological threshold before Japan’s Ministry of Finance previously intervened on a large scale. The latest announcement from Japan’s Ministry of Finance states that from April 28 to May 27, a total of 11.7349 trillion yen was used to intervene in the currency market, buying yen and selling foreign exchange to directly suppress yen shorts. The latest CFTC positions (as of May 26) show that non-commercial accounts hold 112,993 long yen futures contracts and 227,660 short contracts, with a net short position of 114,667 contracts, further increasing by 27,152 contracts from the previous week. The crowded yen short positions have not fully exited; instead, they continue to increase, indicating that carry trades have not experienced a systemic breakdown. Previously, the Bank of Japan maintained its policy rate at 0.75% during the April meeting, but three of the nine members (Takata Hajime, Tamura Naoki, Nakagawa Junko) publicly advocated for a rate hike to 1.0%. They also raised the FY2026 core CPI forecast to a 2.5%-3.0% range and stated that they would continue gradually adjusting easing policies, with inflation pressures becoming an important factor triggering carry trade unwinding. However, the recent rise in Japanese stocks was not solely driven by carry trade unwinding. According to Reuters, as of the week ending May 23, foreign investors had net bought Japanese stocks for the eighth consecutive week, with a weekly net purchase of 1.08 trillion yen, totaling nearly 11.7 trillion yen this year (compared to only 742.1 billion yen in the same period last year). The funds mainly flowed into AI and semiconductor-related stocks. Several major Wall Street institutions have recently pointed out that yen arbitrage trades face risks of forced unwinding, which could promote a trading logic of "selling dollars and buying assets benefiting from Japanese inflation." UBS outlined a scenario of yen carry trade unwinding as early as April, warning that if the BOJ’s tone remains dovish or inflation pressures intensify, the dollar could weaken further. Apollo Global Management’s Chief Economist Torsten Slok also publicly warned in February that volatile speculative futures positions indicate that carry trades can be "quickly closed." Previously, Goldman Sachs, Morgan Stanley, and other institutions viewed carry unwinding as a long-term catalyst for the Japanese stock market, especially benefiting sectors sensitive to domestic interest rates and inflation. Currently, the market is constructing a narrative around "Japan intervention + BOJ rate hike expectations + inflation pressures" to build carry trade risk, pressuring the dollar and supporting Japanese interest rate/inflation-benefiting stocks. However, with USD/JPY returning near 160 and net short positions on the CFTC remaining high, it indicates that global funds’ yen short positions have not been forcibly closed. The strength of the Nikkei 225 is more a result of foreign capital chasing AI re-inflation trades rather than purely carry unwinding. This narrative is still evolving, but there is still a distance from the systemic crash seen in August 2024. Investors should continue to monitor the USD/JPY 160 level, the next intervention measures by Japan’s Ministry of Finance, and signals from the BOJ’s July meeting.

JPN225-1.17%

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Japanese stocks continue to rise to new highs, the narrative of the yen carry trade collapsing heats up

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