Nomura Research notes that retail FX investors’ largely stretched net short USD/JPY positions are likely influencing the MOF’s judgement on when to intervene.

One likely big concern for the MOF is Japanese retail FX investors’ current JPY positions. As it became evident in the Financial Futures Association of Japan’s data for June that Japanese retail FX investors' net short USD/JPY positioning reached its highest level since data collection began in 2010 of $18bn. This substantial short position suggests they are trading USD/JPY in anticipation of near-term MOF intervention," Nomura notes.

This will be an issue of the MOF, as their large net short USD/JPY positions could undermine the effectiveness of intervention, as the MOF’s bold purchases of JPY would ultimately benefit retail investors' returns, and it’s reasonable that they will flip and buy USD/JPY after its dip. Therefore, these local investors will make it difficult for the MOF to meet its objective to strengthen the JPY, if it intervenes.

Considering these potential dynamics, the MOF could force retail investors to close their short positions before intervening to increase efficacy. We do not have a solid estimate of where these retail FX investors’ net short USD/JPY positions are concentrated; however, according to a Nikkei article (1 July), full-scale stop-loss orders in short USD/JPY are likely to be triggered from 163, with additional concentration around 164-165," Nomura adds.