Hedge Funds Turn Most Bearish on Yen Since 2007 as Currency Hits Four-Decade Low

Hedge funds are more bearish on the yen than at any time since 2007, according to recent CFTC positioning data. Net shorts on the currency stand at approximately 146,000 contracts, with hedge fund shorts and asset manager longs experiencing their widest gap in nearly two decades.

The yen has continued its downward trend, recently sliding past 162 against the US dollar in late June 2026, a level not seen since 1986. Interest rate differentials are driving this decline, as the US continues to offer higher yields than Japan, making dollar-denominated assets more attractive to global capital.

Goldman Sachs has adjusted its forecasts accordingly, predicting that USD/JPY will reach 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 the 165 level by mid-2027.

The carry trade, where investors borrow yen at Japan's rock-bottom rates to invest in higher-yielding assets elsewhere, is likely driving this trend. With the number of net short contracts on the books, any forced unwind could have significant consequences for global markets and risk assets such as equities and crypto.