Hedge Funds Bet Big on Yen Rally Against Dollar

Hedge funds are increasingly betting that the Japanese yen will strengthen beyond its current value against the US dollar. This shift in sentiment has been observed by Nomura, which notes that macro hedge funds have become more bearish on the dollar-yen pair. The most-active option on the Chicago Mercantile Exchange Group is a put option expiring in November with a strike price of 142.86.

The yen's resilience despite last week's robust US payrolls report has emboldened investors to bet on further gains, according to Jerry Minier, global head of linear G-10 FX trading at Citigroup. The currency pair fell nearly 5% in the week through Tuesday before paring some losses, as investors rushed to unwind yen-funded carry trades.

Demand for downside options has increased significantly, with some traders using digital options and other option spreads to target levels as low as 140. This shift in sentiment is a departure from previous months, when the dollar-yen pair was seen as a support level. The current view among investors is concentrated on the 150/152 target.