Hedge funds turn most negative on the Japanese yen since 2007

[NEW YORK] Hedge funds turned the most negative on the yen since 2007 as the currency trades near its weakest level in four decades. 

In the options and future markets, leveraged traders boosted their wagers on further losses in the yen to nearly 138,000 contracts as at Jun 30, according to Commodity Futures Trading Commission data released on Monday (Jul 6). 

The surge in bearish positioning comes as the yen fell to its weakest level since 1986, breaking the level of 162 per US dollar, inviting speculation about when Japanese officials may intervene in the market to help prop up the currency.

The currency traded at 162.07 at 7.13 am in Tokyo on Tuesday.

The yen remains one of the worst performers this year among major currencies, dragged lower by a wide gap between interest rates in Japan and other nations such as the US.

While the Bank of Japan delivered on an expected interest rate hike earlier in June, which should have helped the yen, the greater impact came soon after, as Federal Reserve chairman Kevin Warsh vowed to restore US price stability. 

Japan’s currency is also facing pressure from Prime Minister Sanae Takaichi’s huge spending plans as well as her preference for monetary easing.

In a draft of its annual plan for economic and fiscal policy, set to be approved in mid-July, the government called appropriate monetary management “extremely important for achieving a strong economy”, stepping up its language compared with last year. 

Japanese Finance Minister Satsuki Katayama repeated last week that she and her colleagues can take appropriate action on foreign exchange at any time.

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Authorities had spent a record 11.73 trillion yen (US$72.7 billion) from Apr 28 to May 27 to defend the yen. BLOOMBERG