By Jamie McGeever
In a significant shift, hedge funds and speculators have reversed their short yen position and are now net long of the currency for the first time since March, 2021. The latest data from the Commodity Futures Trading Commission reveal a net long position of over 23,000 contracts, representing a bullish bet worth $2 billion.
Just seven weeks ago, these funds held their largest short position in 17 years, betting $14 billion against the yen. The recent momentum shift towards bullish bets on the yen has been historic, driven by factors such as a hawkish Japanese rate hike and safe-haven demand during a period of heightened U.S. stock market volatility.
While the yen saw strong gains against the dollar in July, recent easing suggests that investors may be regaining their risk appetite. The question now is whether funds will return to yen-funded carry trades, given the ongoing volatility and economic conditions.
Analysts remain divided on the outlook for the yen, with some pointing to the dollar’s interest rate advantage and others highlighting the potential impact of sustained volatility on carry trades. The upcoming inflation data from Japan and the Federal Reserve’s rate-cutting plans are also factors to consider.
Overall, the recent shift in sentiment towards the yen signals a potential turning point in the currency’s performance. While the future direction remains uncertain, investors should closely monitor market developments and economic indicators to make informed decisions.
The opinions expressed here are those of the author, a columnist for Reuters. (By Jamie McGeever; Editing by Michael Perry)