Despite an unprecedented amount of monetary easing taking place at the Bank of Japan, the yen has since the middle of 2015 been on a consistently strengthening trend versus the USD. As paradoxical as it may seem in a period when the Fed talked about, and then did raise interest rates coincident to the BOJ firing off ever more arrows, the strengthening yen has been the reality. That reality may be about to take a breather, though, as too many investors have moved to the same side of the boat in betting on yen appreciation while the “smart money” is net short the yen.

In the chart below we show the net commercial trader positioning on yen options and futures contracts. Commercial traders are the “smart money” in that times of their extreme positioning often coincide with inflection points in the markets. They are the opposite of small speculators, who often have extreme positioning at inflection points as well, except that it’s the wrong positioning.

At the moment, the “smart money” commercial traders are carrying a near record net short position on yen options and futures of about 68,000 contracts. Previous periods of positioning near this extreme level have usually coincided with with a pause in appreciation or a selloff of the yen.

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