Strategists at JPMorgan have indicated that a break of the 155 level in the dollar-yen pair could trigger a faster appreciation of the Japanese currency, driven by a fresh wave of short covering in the market.

In a research note, a team led by Junya Tanase estimated that net short yen positions currently stand at roughly 16 trillion to 17 trillion yen. If these positions were to be fully unwound, the analysts project the dollar-yen exchange rate could slide into a range of 142 to 146.

The recent price action, according to the note, supports the view that a relatively substantial volume of yen short positions remains open. The primary catalyst behind this week's dollar-yen decline appears to be growing speculation over potential asset allocation adjustments by Japan's Government Pension Investment Fund (GPIF), alongside rising expectations for further rate hikes by the Bank of Japan.

While the possibility of a change to GPIF's basic portfolio cannot be entirely dismissed, the strategists cautioned that visibility on this front remains extremely low at present. Additionally, they suggested that the recent uptick in rate hike bets may be somewhat overdone.

JPMorgan currently assesses that the probability of the dollar-yen breaking significantly below its projected trading band of 155 to 165 remains limited.