Hedge funds are reversing bearish positions on the Japanese yen, ramping up bets on currency strength as the “buy Japan” trade gathers momentum and policymakers reiterate their readiness to intervene in foreign-exchange markets, according to a report by Bloomberg.
The yen steadied on Thursday after extending gains against the US dollar earlier in the session. Japan’s top currency official, Atsushi Mimura, said authorities remain on high alert over FX movements, even as the currency rallied this week.
Only days ago, hedge funds had been rebuilding short yen positions ahead of Japan’s pivotal election, anticipating renewed weakness on expectations that Prime Minister Sanae Takaichi would secure a fresh mandate for expansionary fiscal policy. That positioning has since begun to unwind.
The report quotes Antony Foster, head of G-10 spot trading at Nomura International, as saying: “Hedge fund sentiment has changed. We’re seeing increased interest in buying downside in dollar-yen, alongside demand to go long the yen against currencies such as the Australian dollar and Swiss franc.”
Options market activity underscores the change in positioning. Trading volume in dollar-yen put contracts of $100m or more was around 50% higher than comparable call options on Wednesday, according to Depository Trust & Clearing Corporation data. The imbalance persisted into Thursday, with demand to hedge or speculate on a decline in the currency pair continuing to rise.
The yen initially weakened following the ruling Liberal Democratic Party’s election victory but rebounded after Finance Minister Satsuki Katayama said the government would respond to FX movements in line with the US-Japan joint statement.
The recovery also coincided with an unwinding of short-term bullish dollar-yen trades ahead of the US employment report.
Positioning in the options market has turned increasingly bearish on dollar-yen, with hedge funds buying short-dated put spreads ahead of the US payrolls data.
