Alan Ruskin, Macro strategist at Deutsche Bank, suggests that there is an active debate on the current state of JPY positioning as the IMM net non-commercial positioning showed some minor trimming of long yen exposure as of Tuesday March15th, but the JPY longs were still near historical highs. Key Quotes “Against this and suggestive of much more restrained long yen positions since the last, possibly dated CFTC snapshot is: i) The risk reversals (3m riskies) and butterflies (10 delta with sign reversed), are more consistent with near flat CFTC non-commercial positioning. By the end of Feb, downside USD/JPY strikes were becoming less fashionable, and upside strikes were offering good value, especially once risk appetite variables had turned. ii) Our CORAX positioning that provides an update through March 22nd had flipped to close to neutral. In addition, relative to long-term trends, leveraged and corporate flow was flattish, leaving real money long JPY. A few conclusions: i) If the derivatives market signals are correct, we should see some sizable trim in CFTC net long yen non-commercial positioning in the next couple of weeks, making positioning a much less scary factor for yen bulls. ii) One of the stand-outs is how USD/JPY followed risk appetite indicators like the S&P until mid-Feb when risk recovered. Since then USD/JPY’s daily correlation with the S&P has remained reasonably high (a 0.54 correlation for levels based data in the last month), but the relationship shows classic statistical drift, because the yen gains more on risk-off days than it loses on risk-on days. This is an important bullish yen signal. iii) The yen had weakened in each March since 2008, which presumably has some linkage to Japanese fiscal year-end, but also reflects some seasonal risk-on bias. That the yen is holding its own this March is a bullish JPY statement. USD/JPY won’t run away on the downside in part because the technical levels that were resistance in the USD bull run are now acting as downside brakes. An example is the Y110 level that is now key support. Nonetheless, the conclusions from the above still favor selling USD/JPY upticks more than buying downticks, especially if CFTC data confirms JPY longs have been at least moderately trimmed.” For more information, read our latest forex news.