Hedge funds have substantially decreased their bearish bets on the yen following a coordinated intervention by US and Japanese authorities to stabilize the currency.
Data released Friday by the Commodity Futures Trading Commission shows that leveraged funds in futures and options markets reduced their net short yen positions by roughly half, to 63,600 contracts, as of August 4. This represents a notable pullback from the end of June, when bets on further yen depreciation surged to nearly 138,000 contracts, the highest level since 2007.
Driven by the widening interest rate differential between the US and Japan, the yen had fallen to its weakest level since 1986, prompting speculators to intensify their bearish positions. Traders began reducing their short positions after the two governments stepped in jointly, leading to a rebound in the yen.
Although the Bank of Japan held its benchmark interest rate steady, overnight index swaps indicate roughly a 60% probability of a rate hike in September. Disappointing US non-farm payrolls data released Friday also weighed on the dollar, diminishing expectations that the Federal Reserve will tighten monetary policy. Traders now see about a 40% chance of a rate increase by the US central bank next month, down sharply from roughly 60% before the report.
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