Hedge funds have renewed their attack on the Japanese yen just days after suspected government intervention to support the currency, with leverage funds upping their bets that it will sink back towards a 34-year low in the next few weeks, according to a report by Bloomberg.
The report cites option traders in highlighting that short-term funds have started buying one- to three-month so-called reverse knock-out call-option (RKO) contracts this week, which gain in value if the dollar-yen rises. Where they differ from regular call options is that they becoming worthless if a specific level is reached, suggesting traders see officials stepping in again soon after a breach of 160 per dollar.
These levels are primarily in the 160.50-161 range, which is above the 29 April high of 160.17, according to traders.
The report quotes Ruchir Sharma, global head of FX option trading at Nomura International in London: “The market is betting that USD/JPY is now stuck in a range with topside capped at 160 by the authorities.
