Hedge funds are ramping up wagers on the yen’s continued strength, with the Japanese currency surging by another 1% on Friday, as traders bought options against the Australian dollar, Swiss franc, and offshore Chinese yuan, according to a report by Bloomberg.
The yen has gained about 14% against the US dollar since the end of June, driven by signals from the Bank of Japan (BOJ) that it may raise interest rates again, although not at its upcoming meeting next week. This has led to the rapid unwinding of short yen positions and boosted the currency to its highest level, 140.37, since December 2023.
Expectations of rate cuts from the Federal Reserve have also contributed to the yen’s rise.
The report quotes Jane Foley, Head of Foreign-Exchange Strategy at Rabobank in London, as saying that :“If the BOJ next week doesn’t shut the door on another rate hike around the turn of the year, we expect USD/JPY to continue moving towards 140 in a three-to-six-month view.”
Other analysts predict the dollar-yen pair may drop to 135 by year-end, a nearly 4% decline from current levels.
Next week is crucial for yen options trades as both the BOJ and the Federal Reserve will make key policy decisions. The BOJ’s decision next Friday will follow a likely Fed rate cut earlier in the week. Comments from BOJ board members have hinted at the possibility of more rate hikes after Japan raised its policy rate to 0.25% in July.
