Many investors have already taken a hit as the Japanese yen has strengthened over the past few weeks but flow data suggests that if short positions are to unwind completely it could take until the end of April.
US financial services firm State Street, which monitors trillions of dollars within its custodial business, calculates that at the recent rate of yen-buying by institutional investors a neutral position would not be reached until April 30.
"On the current run rate it would take them into the end of April to unwind the (short) position," said Michael Metcalfe, head of global macro strategy at State Street Global Markets. The dollar was at 117.42 yen on Friday, down around 2.6 percent from its 120.59 yen rate on February 27 when a global stock sell-off began and investors started unwinding yen short positions.
Friday's rate is a recovery for the dollar, which fell as low as 115.13 yen, or 4.5 percent, earlier this week. State Street has previously noted large yen short positions among its clients, which would be consistent with the carry trade in which investors have borrowed in low-yielding yen to buy assets in higher-yielding currencies.
That is now unwinding. The average position was taken at 119.70 yen to the dollar with the vast majority above 118.00 yen. But there have been at least 9 days of buying over the recent period. "Thus, institutional investors are significantly under water, even when one takes into account the positive carry," State Street said. Researchers at the firm also conclude from recent foreign exchange flows that yield is no longer a major motivator in the decisions behind currency moves.
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