Traders' bets on shorting the yen have reached the second-highest level in history.

This comes just days after Japan and the US spent an estimated $88 billion attempting to prevent the yen from falling.

As of July 28, the combined net short position of asset management companies and leveraged funds reached -205,000 contracts, second only to the record set in 2024. Short sentiment among hedge funds alone has hit its highest level since 2007.

The intervention took place, but traders immediately resumed shorting.

Following the intervention, the USD/JPY exchange rate reached 155.2 and has now rebounded to 158.5.

In 2024, positions also reached similar extreme levels. When they unwound, the yen experienced sharp volatility as everyone rushed to close their positions simultaneously.

That was the market crash in August 2024, which dragged down global stock markets.

There are two ways this situation can resolve:

If the Bank of Japan continues to lag in raising interest rates, some institutional investors consider 200 a realistic tail risk.

If these positions unwind, USD/JPY could fall toward 150 as traders rush to repurchase the yen.

Either way, the market has already deemed this intervention ineffective.

The interest rate gap remains. Until the Bank of Japan bridges it, no amount of spending will solve the problem.