Hedge funds have flipped their stance on Japan’s currency, turning bullish on the yen for the first time since 2021 following significant turbulence in foreign-exchange markets that disrupted a popular yen carry trade, according to a report by Bloomberg.
The report cites the latest data from the Commodity Futures Trading Commission (CFTC) for the week ending 13 August, as showing that speculative traders are now betting on gains in the Japanese currency, marking a stark reversal from the deeply negative sentiment that prevailed just a month ago.
Leveraged funds now hold 86 contracts, valued at approximately $7m, tied to expectations that the yen will appreciate, according to the CFTC data.
This shift in positioning comes after a rally in the yen driven by speculation that the Bank of Japan (BOJ) might continue raising interest rates. Although BOJ officials have since tempered those expectations, the resulting market volatility led many investors to unwind their yen carry trades – a strategy where investors borrow in yen at low rates to invest in higher-yielding assets abroad.
Since the start of July, the yen has surged about 9% against the US dollar, outperforming all other Group-of-10 currencies.
Just a week earlier, speculative traders held roughly 20,000 contracts betting on a weaker yen. However, since early July, these traders have been steadily reducing their bearish positions, as reflected in the CFTC data.
