Welcome back to the weekly positioning watch.

What a week it has been so far! The recession narrative has slowly but surely vanished from global markets, leaving the events of this Monday a clear outlier and more a question of positioning rather than anything else. However, there are still debates about the true causes behind the sell-off, with the position squaring in USDJPY currently dominating the headlines as the main cause.

While that might be true, it’s hard to imagine that equity exposures globally have been financed through the JPY carry trade, as that would leave people with both equity and FX risk. There is inevitably a ripple effect from the margin calls caused by the sell-off, as the position squaring seen after the Fed/BoJ meeting has not happened fast enough to protect against the risks of two consecutive 2-3% moves in USDJPY.

The move in Nikkei remains somewhat unanswered, as the move in USDJPY can’t really justify a >10% change in equities. However, the move is reminiscent of the QT tapering event in 2013, as markets seem to be concerned about what happens if risk sentiment sours while the BoJ minimizes its balance sheet.

The worst of the scares have been put to bed today, with Ushida calming JPY markets down, but they are admittedly yet to turn around the ship on the QT plans.

Chart 1: A 10% move in Nikkei is not justified by USDJPY alone