Speculators' net short yen positions plunged following the coordinated Japan-US intervention at the end of July, shrinking to 40,000 contracts as of 4 August. The USD/JPY rate's sharp break below its 120-day MA has been cited as a factor behind mounting losses on yen-selling positions and the acceleration of their liquidation.
Speculators' net short yen positions stood at 160,000 contracts as of 28 July, but had shrunk to 40,000 as of 4 August, spanning the coordinated Japan-US intervention. The accompanying chart shows that net short positions plunged to one-quarter of their level over the course of that week.
Unlike the intervention during Golden Week, the sharp decline in speculative yen selling that had driven yen depreciation in this intervention episode is viewed as having been prompted by USD/JPY falling well below its 120-day MA, which increased losses and encouraged liquidation.
The 120-day MA for USD/JPY was ¥159.6 as of 7 August. A move above this level is considered a potential condition for hedge funds to resume yen selling, while a sustained move below the 120-day MA is seen as potentially leading to increased yen buying.
In EUR/USD, as the euro has strengthened and the US dollar weakened, speculators' net short euro positions declined from 70,000 contracts on 28 July to 50,000 on 4 August. If the pair continues to trade above its 120-day MA, liquidation of short euro positions in response to losses could accelerate.
Net long US dollar positions may enter a corrective phase, and the risk has also been noted that US dollar selling could expand sharply depending on developments going forward.