Yen Intervention Fails, Carry Trades Thrive

The joint currency intervention by Japanese and U.S. authorities in late July failed to reverse yen weakness and actually provided a chance for carry traders to rebuild short positions at more favorable levels.

Approximately $87 billion was spent on the intervention, with Japan deploying around $53 billion on July 30 followed by another $34 billion the next day.

The brief currency rebound after the intervention was quickly swallowed up by carry-trade flows, and the yen has since surrendered half of its gains, closing in on the 160-per-dollar threshold.

Hedge fund positioning data shows that leveraged funds trimmed their net yen short positions by 6.5% to 59,526 contracts in the week through August 11.