ORLANDO, Florida, April 28 (Reuters) – Hedge funds’
collective bet against the Japanese yen has mushroomed to the
second largest ever, further evidence that while economic
fundamentals are behind the currency’s extraordinary fall to
34-year lows against the dollar, so too is speculative trading.
Japanese authorities have repeatedly vowed to take “decisive
action” against speculative activity. But as yet, there has been
no intervention from Tokyo despite the currency’s 11% slump this
year to 160.00 per dollar, a level last seen in 1990.
Indeed, Commodity Futures Trading Commission data that
shows speculators’ largest net short yen position since June
2007, and the second biggest since yen futures contracts were
launched in 1986, is already probably out of date.
The figures are for the week through April 23 and the yen
has fallen another 3% since then, most of that following the
Bank of Japan’s April 26 policy decision. The short yen position
for the week to April 30 will almost certainly be a new record.
As it is, in the week through April 23 CFTC funds increased
their net short yen position to 179,919 contracts. The only
bigger net short position since CFTC yen futures were launched
in the mid 1980s was the 188,077 contracts in June, 2007.
A long position is essentially a bet that an asset will rise
in value, and a short position is a wager its price will fall.
Funds’ net short yen position in the first week of January
was just 55,949 contracts. They have increased it in 13 of the
16 weeks this year, and it has almost doubled in size in the
last six weeks.
Some observers would argue that looks a lot like speculative
activity, and there is little doubt that CFTC funds’ positions
are deep in extreme territory.
$36 BILLION DOLLAR BET
Does the Ministry of Finance agree? So far, it appears not,
but with the dollar briefly breaching 160.00 yen in early Monday
trade in Asia – Japan is closed for a public holiday – yen
traders will be on heightened intervention alert.
The effectiveness of any intervention beyond an immediate
yen bounce, however, remains to be seen.
“Given the fundamental backdrop, which is likely to be
reinforced (this week) by FOMC and U.S. labour data,
intervention flushes are merely a means of unwinding excess
positioning and providing some two-way risk for markets,”
Westpac analysts wrote on Sunday.
In dollar terms, CFTC funds’ position is a $14.5 billion
leveraged bet against the yen, the largest since November 2017.
That accounts for 40% of their aggregate $36.3 billion net long
dollar position against G10 currencies, the most bullish bet on
the greenback since May 2019.
Earlier this month, funds’ yen position accounted for around
60% of their overall long dollar position against G10
currencies, so they are expressing their increasingly bullish
dollar view against a wider range of currencies.
The CFTC data for the week to April 23 show that funds were
net short of euros to the tune of almost 10,000 contracts, the
first net short position since September 2022.
Perhaps even more remarkable was the move against sterling.
Funds swung to a net short of 26,233 contracts – the first net
short since November – from a long of 8,619 contracts the week
before.
That swing of almost 35,000 contracts was the biggest
bearish shift in a single week since December 2007 and the
fourth largest ever.
Yen bets and the broader dollar position are getting
stretched. Momentum is strong, but a reversal must surely be
closer.
(The opinions expressed here are those of the author, a
columnist for Reuters)
(By Jamie McGeever; Editing by Jacqueline Wong)
