JPMorgan Chase & Co. strategists warn that a further unwind of sizable short positions could accelerate the yen's gains if dollar-yen strengthens past 155 per dollar. Recent price action corroborates the view that a relatively large JPY short position may still be outstanding. If dollar-yen breaks below 155, the risk cannot be ruled out that selling could beget further selling and drive a larger-than-expected yen appreciation.

JPMorgan estimates between ¥16 trillion and ¥17 trillion of bearish yen positions remain outstanding, and says a complete theoretical unwind could push the pair into a 142-146 range. The warning follows one of the currency's sharpest rallies since Japan and the US jointly intervened in late July. Dollar-yen climbed to 160.39 earlier this week, its highest since that operation, before reversing sharply to as low as 155.30.

The rally has been fueled by speculation over a potential shift in the Government Pension Investment Fund's asset allocation and mounting expectations for faster Bank of Japan rate hikes. Market watchers say those catalysts have been amplified by an unwind of speculative yen shorts and hedging demand from domestic investors. Still, JPMorgan says expectations around both GPIF and BOJ look a bit excessive and does not see a high probability of dollar-yen falling materially below its assumed 155-165 range.