We just mentioned that Shinzo Abe, Japan’s pro-inflation candidate, appears to have won a sweeping victory in today’s Japanese national elections.
The pressure he is expected to apply to the Bank of Japan to ease more has been a big cause of Yen weakness in recent weeks.
And EVERYONE has been on board the short yen trade.
The trade is the most crowded it’s been since 2007.
After growing shorter for 3 straight weeks, the Japanese yen set a new record for its largest net short position since July 2007 in the week ending Tuesday. Moreover, our real-time estimates indicate that investors have built on their net short JPY positions since then by close to $2bn leading into Sunday’s election, and risk reversals are growing even more heavily skewed for JPY puts vs. USD calls.