Hedge Funds Bet Against Yen as Currency Weakens Further

Hedge funds have reverted to bearish positions on the Japanese yen, resuming short bets as the currency weakens against the dollar. Despite interventionist warnings from Japanese officials, the yen has declined for a third straight week, raising doubts about the Bank of Japan's (BOJ) commitment to aggressive monetary tightening.

Data from the Commodity Futures Trading Commission (CFTC) shows that leveraged traders held a net short yen position worth about JPY210 billion ($1.3 billion) in the week ending 29 September. This shift erased the net bullish stance they had built over the prior two weeks. The persistent interest-rate gap between Japan and the US continues to favor dollar-denominated assets, contributing to the yen's weakness.

The BOJ's recent rate hike was seen as cautious, further fueling skepticism. Meanwhile, hedge funds also turned net short on sterling for the first time this year, pushing the pound to a three-month low against the dollar. Other notable moves included increased short positions in the Canadian dollar and reduced shorts in the Swiss franc.

In contrast, asset managers took a more bullish stance on the yen, increasing their net long position by 9,463 contracts to 51,961. This divergence highlights differing strategies between speculative traders and longer-term investors.