On June 3, the USD/JPY exchange rate touched 160.44 during intraday trading, marking a new high since July 2024. On the same day, the Nikkei 225 Index breached 68,000 points for the first time, reaching a peak of 68,634.74 points. The combination of these two figures immediately triggered a familiar narrative in the market: "The carry trade is about to unwind, a repeat of August 2024."
This narrative is half true. The other half tells a completely different story based on the data.
Shorts have not covered, but rather added to their positions
The most direct indicator of the crowding in the yen carry trade is the Commodity Futures Trading Commission (CFTC) weekly report on non-commercial positions. It records speculative traders' net long or short positions in the yen futures market.
According to the CFTC's Commitments of Traders report, as of the week ending May 26, non-commercial net short positions in yen futures reached 114,667 contracts — with long positions at 112,993 contracts and short positions at 227,660 contracts. The net short position increased by an additional 27,152 contracts compared to the previous week.
From the chart, we can see a somewhat counterintuitive trend. In July 2024, when USD/JPY touched a high near 161, the CFTC net short position was around the historical extreme of -180,000 contracts. Following this, in early August, the Bank of Japan (BOJ) unexpectedly hiked interest rates, coupled with a significant miss in U.S. nonfarm payroll data. Yen shorts were forcibly liquidated within a few weeks, causing the net short position to rapidly shrink from around -180,000 contracts to over +177,000 contracts as a net long position by the second quarter of 2025 — indeed, a systematic squeeze in the carry trade occurred during that period.
However, the subsequent trend is entirely opposite to the "squeeze narrative." Starting from the end of 2025, yen net short positions began to accumulate again, flipping negative in February 2026 and rapidly expanding to -102,000 contracts in April. By May 26, the net short position had reached -114,667 contracts. When USD/JPY revisited the 160 level, global speculative funds were not unwinding but rather continuing to add to their positions.
This implies that if the BOJ signals a more hawkish tone at the July meeting or if U.S. economic data once again unexpectedly weakens, these -114,667 net short positions will face passive liquidation pressure similar to what happened in August 2024. The Japanese Ministry of Finance is also aware of this — from April 28 to May 27, the ministry intervened by using a record 11.7349 trillion yen to buy yen and sell foreign currencies in an attempt to suppress the shorts.
Largest Single Intervention Fails to Defend 160
The history of Japan's Ministry of Finance in forex intervention dates back to 1998. In the autumn of 2022, when the yen fell to around 152, the Ministry of Finance conducted a "buying yen" operation for the first time since 1998: in September, they slammed 2.84 trillion, and in October, they added 6.34 trillion, totaling approximately 9.18 trillion yen. That intervention briefly pushed USD/JPY back from 152 to near 127, but the effect only lasted for a few months.
In the spring of 2024, USD/JPY once again approached 160 and briefly broke through. The Ministry of Finance intervened with about 9.80 trillion yen, marking the largest single-round operation since 2022 and the "first confirmed buying intervention since 2022."
According to the monthly intervention data released by the Japanese Ministry of Finance on May 29, 2026, the scale of the operation from April 28 to May 27 was 11.7349 trillion yen (equivalent to approximately $73.6 billion), marking the largest single intervention on record, exceeding the total intervention amount for the entire year of 2022 and surpassing the spring of 2024 by nearly 2 trillion yen.
However, shortly after the Ministry of Finance disclosed the figures, USD/JPY once again rose above the 160 level. The largest-scale intervention failed to completely hold this psychological level.
Foreign Investment Buying Japanese Stocks, Chasing AI Rather Than Carry Unwinding Safe-Haven Flows
If the carry trade is still crowded, why is the Nikkei 225 hitting new highs?
According to Reuters citing data from Japan Exchange Group (JPX), as of the week ending on May 23, foreign investors have been net buyers of Japanese stocks for the 8th consecutive week, with a single-week net purchase of 1.08 trillion yen. The year-to-date cumulative net purchase amount is approaching 11.7 trillion yen.
During the same period in 2025, foreign net purchases totaled only 742.1 billion yen. This year, the figure is 15.8 times that amount.
The destination of these funds is very concentrated. Among the stocks with significant gains during the same period, AI investment platform SoftBank Group rose 17.62% in a week, and chip designer Socionext rose 12.26%. Reuters directly stated the buying driver: Nvidia's performance outlook boosted AI and semiconductor demand prospects, and foreign funds are embracing this theme in the Japanese market.
This is in stark contrast to the logic of the "carry unwind-induced sell-off" in August 2024. That time saw forced deleveraging and indiscriminate selling, with funds pulling out of the Japanese market. In contrast, the net foreign inflows in 2026 were a proactive choice to enter the Japanese market to chase the AI-driven reflation rally. The driving mechanisms of the two events are different, leading to different implications for the Nikkei Index.
Rate Hikes Not Suppressing Stock Market, But the Relationship Is Becoming More Fragile
Another counterintuitive aspect of the Nikkei 225 is its continued rise amid the Bank of Japan's (BOJ) consecutive rate hikes.
According to the Bank of Japan's policy decisions announced, the rate hike path over the past two years is as follows: ending the negative interest rate policy in March 2024, raising the policy rate from -0.1% to 0.1%; raising it further to 0.25% in July 2024; hiking to 0.5% in January 2025; and increasing to 0.75% in December 2025, the highest level since 1995. The April 2026 meeting kept the rate at 0.75%, but with a 6-3 vote—a clear stance by three members (Hajime Takada, Naoki Tamura, Junko Nakagawa) in favor of hiking the rate to 1.0%.
From the chart, it is evident that the correlation between rate hikes and the Japanese stock market trends is completely different at different stages. The July 2024 rate hike triggered a historic single-day drop of 12.4% in the Nikkei 225—that was because the BOJ's rate hike coincided with the release of U.S. nonfarm data, directly setting off carry unwind. However, the two rate hikes in January and December 2025 were accompanied by the Nikkei 225 climbing from around 40,000 points to the current new high of 68,634 points.
The reason behind this is not complicated: when foreign inflows are driven by chasing AI reflation rather than relying on the yen's low-rate funding cost, the impact of BOJ's slight rate hikes on this part of the funds is quite limited. Of course, this relationship is not static—if the BOJ were to really push the rate to 1.0% in the July meeting and the U.S. dollar weakens due to other factors, causing a sharp rise in carry trade financing costs, then the trajectories of the two curves may re-couple.
Putting the three charts together provides a relatively complete cognitive framework: Yen shorts are still crowded, the Ministry of Finance's historically largest intervention failed to hold the line at 160, but the driver of the new high in Japanese stocks is the AI foreign fund rally—these three facts being true simultaneously are not contradictory to each other, and none of them alone can predict what will happen next.
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