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Is Short Yen Crowded?

Short Yen has been, and perhaps will continue to be, one of the most defining trades of 2013. The most recent pullback, however, has shaken some investors and traders out of their position. This vicious pullback corresponded with historically high short interest in the underlying currency, according to the CME. The chart below displays dealer positioning in the Japanese Yen.

USD/JPY moved aggressively off its late May high. During this time the pair sliced through the 50 and 100 day moving average, before finding support. The snap back rally has been equally as aggressive.

The fundamentals behind this trade derive from recent news out of Japan. The Bank of Japan is targeting doubling the monetary base in two years. Additionally, they are targeting 2% inflation.

The pair is up 15% YTD and will absolutely be an important asset to watch in the coming months.

Disclosure: I am long YCS, EWJ.