The recent plunge has evaporated over $6 trillion from global stock markets, with arbitrage closing considered the unprecedented cause of the global selloff. Investors' biggest question now is whether arbitrage closing has finally come to an end?

The answer depends on who you ask.

French industrial bank wrote in its latest stock strategy report that a measurement standard for arbitrage closing was in the 'beginning of the end phase'. As strategist Manish Kabra wrote, 'US CPI is softening and Japan's hawkish moves are pushing the reversal of US-Japan financing trades, which supports the safe-haven sentiment of Nasdaq 100. Although the yen is still far from fair value, data from the CFTC shows that most short positions of the yen have been reversed in July.'

Kit Juckes, FX strategist at French Bank, wrote: 'It's not the arbitrage that matters, it's how the seven giants in the US tech sector respond. That is the biggest threat to the stability of the market, not the performance of the FX market but the performance of the US stock market, particularly the tech sector. The rise was huge, valuations were stretched and Warren Buffett's preference for cash is headline news again. If that market continues to fall, it will impact the economy and the Fed. Otherwise, the Fed won't have much concern. The labor market is still tight, and the economy is still growing. If the stock market falls too much/too fast, or if the August employment report released in early September is very weak, the situation will change. Otherwise, we should expect a series of Fed speakers to hint at a 25 basis point rate cut next month.'

J.P. Morgan has published an opinion that is far from happy. Its global FX strategy co-director, Arindam Sandilya, told Bloomberg TV that there is more room for arbitrage closing recently, as the yen is still one of the most underestimated currencies. 'We definitely haven't finished yet,' he said, adding, 'in the speculative circles, the lifting of arbitrage positions is only 50%-60% complete.' Meanwhile, those who expect arbitrage trades to return to pre-yen levels will have to wait a long time, because the technical damage to portfolios caused by short-term, sharp fluctuations 'is not easy to repair'.

UBS's view is similar to J.P. Morgan's. 'I guess only about 50% of the arbitrage positions have been lifted,' UBS macro strategist James Malcolm wrote in a memo to clients on Tuesday. Malcolm estimates that at its peak, the size of U.S. dollar-Japanese yen arbitrage trade was at least $500 billion. He calculated that about $200 billion of arbitrage positions had been lifted in the past two to three weeks.

'How much arbitrage closing can be achieved largely depends on the level of interest rate differentials, rather than the fluctuation of interest rate differentials,' he said, adding that comparing the current trend with the closing of arbitrage positions in 1998 indicates that there may be more closing in the future.

Canadian Bank of Nova Scotia's Shaun Osborne agrees, noting that two key indicators of arbitrage trading, the Bloomberg G10 Interest Rate Index and Bloomberg GSAM FX Interest Rate Index, have fallen by about 5%, only half the decline seen in the past three significant arbitrage closings. In a report on Tuesday he said, 'The adjustment of arbitrage positions has been very rapid in the past few weeks but may need further adjustment.' He said that short positions on the yen held by hedge funds and other speculative investors had decreased by only about 50%. This would mean more volatility in future risk assets and a stronger yen in future.

Goldman Sachs has a different view. The firm's FX team's position data shows that most short positions on the yen have been cleared and that the position is slightly biased toward the long side. This may be a sign that the market is approaching bottom. Goldman Sachs is much more optimistic about the timeline for the lifting of arbitrage positions. Therefore, Goldman Sachs sees various downstream assets such as the Nikkei index as more bullish. The trading department of Goldman Sachs believes that 'Considering the fundamentals, the Nikkei index is at a very attractive level,' although the research and strategy team currently remains cautious, taking into account the possibility of further unwind and the uncertainty of the future macro environment (economic growth, yen stability, US economy, etc.), the outlook for the near term is still uncertain.