Hedge Funds Flock to Yen as Dollar-Yen Falls Below 155
Global hedge funds are placing bets on further yen gains, predicting that the dollar-yen exchange rate will fall below 150 by year-end. The recent strength of the yen has proved more resilient than expected, with the currency holding firm despite strong U.S. employment data.
The unwinding of yen carry trades, accelerated by rising expectations for additional Bank of Japan rate hikes, has contributed to the dollar-yen exchange rate's 5% decline over the past week. The break below 155 yen per dollar has further reinforced hedge funds' bullish yen bets.
Macro investors have increased short dollar-yen positions since the breach of 155, with the market's main target range now concentrated around 150 to 152. Some investors are also placing bets on the yen strengthening to 140 per dollar, using 12-month digital options and option spreads to build positions for a scenario in which dollar-yen falls to that level.
Citigroup's global head of G10 foreign-exchange trading, Jerry Minier, noted that 'leveraged investors are moving aggressively to respond to a potential regime shift in currency markets.'