Torsten Slok, chief economist at Apollo Management, has cautioned that the yen carry trade could unwind quickly following pronounced shifts in speculative futures positioning. In a note, Slok highlighted the speed with which carry trades can reverse even when a larger yen-funded footprint persists across the market.
According to recent Commodity Futures Trading Commission (CFTC) data cited by Slok, speculative investors have trimmed their net short position on the yen to 70,552 contracts. That level represents the smallest bearish futures position in nearly a month, reflecting a meaningful change in speculative sentiment.
Slok contrasted those futures flows with balance sheet information from the Bank for International Settlements (BIS), which shows that yen lending to offshore financial centers and to non-bank borrowers remains high. He characterized that persistence as evidence of a large stock of yen-funded positions that continues to exist despite the reduction in speculative shorting.
The carry trade involves borrowing in the low-yielding yen and deploying those funds into assets denominated in higher-yielding currencies or other investments. This strategy has attracted attention amid the market moves this year, as participants gauge how rapid shifts in futures positioning might translate into broader funding and asset allocation pressures.
Market data included in the discussion show the Japanese currency has strengthened by 1% against the dollar so far in 2026. Slok noted that this appreciation has coincided with speculation about possible direct intervention by Japanese and U.S. authorities to prevent further yen depreciation, a development market participants are watching closely.
Taken together, the combination of a reduced speculative net short in futures, a large outstanding stock of yen-funded positions outside Japan, and the recent yen appreciation frame a scenario in which carry trades could reverse rapidly—potentially creating friction in currency and funding markets if that happens.
Impacted market segments
- Foreign exchange markets, particularly USD/JPY futures and spot flows.
- Offshore lending and non-bank borrower funding structures reflected in BIS balance sheet data.
- Speculative futures positioning and broader funding markets that support carry strategies.