In a recent interview with Bloomberg TV, Arindam Sandilya, co-head of global FX strategy at JPMorgan Chase & Co., stated that the ongoing unwinding of carry trades still has more room to run, as the yen remains one of the most undervalued currencies. Sandilya added that the current unwind, particularly within the speculative investing community, is estimated to be between 50% and 60% complete.

The recent surge in yen volatility, driven by concerns of a potential US recession and the Bank of Japan's rate hike, has negatively impacted yen carry trades. These trades, which involve borrowing at low rates in Japan to invest in higher-yielding assets elsewhere, have historically been popular among investors due to low volatility and the expectation of rock-bottom Japanese interest rates. However, with the yen appreciating by 11% against the dollar in the past month, many of these trades have suffered losses.

As investors rush to close out their short yen positions, both emerging and developed markets that were once attractive destinations for such strategies have felt the consequences. The Mexican peso, in particular, has been heavily affected, with losses reaching 6.8% over the past month, making it the worst performing major world currency tracked by Bloomberg.

Sandilya believes that a quick recovery to pre-yen rally levels in carry trades is unlikely, as the abrupt movement has caused significant technical damage to portfolios, which will take time to repair. He suggests that a best-case scenario would be market stabilization around current levels, with a possible shallow recovery. However, he also notes that it is not uncommon for such moves to continue, albeit at a slower velocity than before.

The ongoing unwinding of the yen carry trade is said to be happening at the fastest pace since 2007, when the currency experienced a surge during the subprime mortgage crisis. JPMorgan had been monitoring the risk of a sharp reversal in the yen's fortunes since March, and now it seems to be materializing. According to JPMorgan's model, the main driver behind this trend is the fear of a US economic slowdown, rather than the recent rate hikes by the Bank of Japan. The future movements of the yen are expected to depend largely on how the US economy evolves and how policy makers at the Federal Reserve react.

Data released last week by the US Commodity Futures Trading Commission, which regulates derivatives markets, already indicated an unwinding of yen shorts prior to Monday's selloff, albeit not yet complete. Leveraged funds had been increasing their bets on further declines in the yen prior to the Bank of Japan's interest rate hike on July 31, as per the data.

In conclusion, the yen carry trade continues to unwind as yen volatility escalates. While the process is estimated to be about halfway complete, the impact on portfolios and markets may not be easily undone. Investors are closely watching how the US economy evolves and the response from the Federal Reserve, as these factors are expected to play a crucial role in dictating future yen movements.