Hedge funds are reloading long yen positions in anticipation of potential currency discussions at this week’s G7 meeting, with growing expectations that Japan may come under pressure to allow a stronger yen as part of broader US-Asia currency diplomacy, according to a report by Bloomberg.
Market activity has picked up significantly following Japanese Finance Minister Katsunobu Kato’s 16 May comments that he will seek FX talks with US Treasury Secretary Scott Bessent – amid speculation that the Trump administration may be softening its stance on a strong dollar. The backdrop has spurred tactical positioning across global macro hedge funds and systematic managers, who view a potential shift in currency rhetoric as a near-term volatility catalyst.
“We’ve seen both hedge fund and real money accounts selling dollar-yen and other yen crosses,” said Antony Foster, head of G10 spot FX trading at Nomura International. “Expectations that Japan may face informal pressure to curb yen weakness has brought macro players back into the long-yen camp.”
The renewed interest comes as macroeconomic and political catalysts converge. The yen briefly strengthened to 144.81 versus the dollar in early Asian trading Monday, aided by Friday’s Moody’s downgrade of US sovereign debt, which cited fiscal sustainability concerns. Hedge funds appear to have used the recent spike in dollar-yen to over 148.65 on May 12—its highest in five weeks—as a tactical entry point for short-dollar positions.
Leveraged funds’ long yen exposure rose to 24,741 contracts for the week ended 13 May, the highest since September 2019, according to CFTC data – a clear indication of growing conviction that the tide may be turning in favor of the Japanese currency.
Ivan Stamenovic, head of Asia Pacific G10 FX trading at Bank of America, noted that, “The rally above 148 made downside entries in dollar-yen more attractive,” referring to the pair’s perceived overbought levels.
In the options market, hedge funds and institutional investors are expressing directional yen views via downside USD/JPY option structures, reflecting expectations of volatility into the G7 summit. Saurabh Tandon, global head of FX options at Standard Chartered, said there’s “clear interest in puts that benefit from yen strength,” while Nomura’s Sagar Sambrani reported clients aggressively buying implied volatility dips to structure long-yen exposure.
Risk reversals– a key indicator comparing demand for dollar-yen puts versus calls – tilted further bearish last week, reflecting increased demand to hedge a potential drop in the currency pair. The shift has been partly fuelled by South Korea’s recent FX dialogue with the US, which raised investor expectations that Japan might be next in line for scrutiny on currency practices.
Tan Teck Leng, head of APAC FX at UBS Global Wealth Management, said, “We’ve seen a clear uptick in demand for downside hedges on USD/JPY in recent sessions, driven by speculation that G7 commentary could trigger FX realignment.”
