JPMorgan: USD/JPY May Range Between 155-165, Four Signals Could Trigger a Short Squeeze
nashnova research
J.P. Morgan's Sept 1 analysis flags that USD/JPY has stalled after hitting 164, and under a base case of quarterly BoJ hikes with no Fed shift, the pair will likely oscillate in the 155-165 range — but four catalysts could unleash a short squeeze driving it as low as 142-146.
How large is the yen short position?
Since October 2025, balance-of-payments flows have net-bought roughly ¥40.7 trillion in yen, but "off-balance-sheet" flows have net-sold about ¥57.1 trillion.
The net result: roughly ¥16.4 trillion in outstanding yen selling pressure still hangs over the market. This means → on paper someone is buying yen, but the shadow selling is bigger — shorts are far from cleared.
J.P. Morgan estimates the current yen short is about 60%-80% of its summer 2024 peak.
If shorts unwind all at once, where does USD/JPY land?
In summer 2024 the BoJ's surprise hike plus U.S. recession fears drove USD/JPY down by as much as ¥23.
The current short is smaller. J.P. Morgan calculates a full unwind could push USD/JPY down ¥14-18, pointing to the 142-146 zone.
In plain terms = based on the 1-year-1-year JPY-USD swap spread — a market gauge of the short-term rate gap between the two countries — USD/JPY "fair value" sits around 144. Once a squeeze starts, the pair won't drift lower gradually; it could snap to fair value or overshoot.
Which four signals could ignite the squeeze?
Signal 1: Fed rate-cut expectations re-heat. A clear U.S. slowdown → narrower U.S.-Japan rate gap → carry trades (borrowing cheap yen to buy higher-yielding dollar assets) lose appeal → shorts exit.
Signal 2: BoJ hikes faster than expected, triggering a Japanese equity selloff. A surprise hike → Japanese stocks fall → offshore investors unwind yen hedges → a chain reaction of "stocks down — close shorts — buy yen."
Signal 3: Japan's GPIF raises its yen-asset allocation. GPIF (Government Pension Investment Fund, one of the world's largest sovereign funds) lifting domestic bond and equity weights from a 25% midpoint to the 31% ceiling could generate over ¥30 trillion in flows. J.P. Morgan views GPIF more as a "cushion" than a solo catalyst — likely not enough on its own to push USD/JPY below 155 quickly.
Signal 4: The U.S. escalates to outright dollar selling. If Washington moves from cross-pair intervention to directly selling dollars, or expands the FIMA repo facility — a tool that provides dollar liquidity to foreign central banks — market impact could far exceed current expectations.
Could the yen weaken again instead?
If the BoJ hikes more slowly than expected, markets may re-price a "political pressure suppresses normalization" narrative, putting yen under pressure.
If the Fed holds rates high or turns hawkish again, the U.S.-Japan rate gap could re-widen, reviving carry trades.
Japan's fiscal risks matter too: the direction of consumption-tax cuts is unclear, defense-spending funding is vague, and a ¥370 trillion public-private investment plan runs through fiscal 2040. This means → BoJ hikes could paradoxically raise government interest costs and increase the risk of a JGB credit downgrade — the foundation for yen strength is not as solid as it looks.
Can the 155-165 range actually break?
J.P. Morgan's base case: USD/JPY most likely stays within 155-165.
Whether the four trigger signals fire simultaneously or in quick succession is the key to a sustained breakout.
In plain terms = any single signal may only nudge the pair. But if multiple signals light up at once, the force of a short squeeze combined with the gravitational pull of 144 fair value could send USD/JPY through 155 far faster than the market expects.
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