Column-Japan is in a battle royale with funds on the yen: McGeever by Stocksak

© Stocksak. FILE PHOTO – This illustration picture shows a banknote made of Japanese yen. It was taken June 15, 2022. REUTERS/Florence Lo/Illustration/File photo

By Jamie McGeever

ORLANDO (Stocksak), – Japan’s historic FX Market Intervention on Sept. 22 failed in stemming the tide of speculative bets against yen. This culminated in a new 32-year low of 150.00 per $1 and a second round intervention last week.

Speculators and hedge funds are unlikely to be discouraged by the Bank of Japan or Ministry of Finance from betting further yen weakness against the backdrop of a yawning U.S. Japan interest rate and bond yield chasm.

Just as the bell rang, a third bout of BOJ/MOF intervention in early Asian trades on Monday was underway. This is a reminder of the battle Japan has to support its currency.

(Dollar/yen & BOJ interventions

This article will examine the evolution of the Commodity Futures Trading Commission’s position since last month’s intervention. It will also provide a deeper dive into the CFTC figures for week to Oct. 18, three days before BOJ/MOF’s second salvo.

According to the most recent CFTC report, funds have increased their net short yen position by almost 95,000 contracts. This is the largest bet against currency since June. It’s a wager that is worth nearly $8 billion.

(CFTC yen positions &

(CFTC yen positions – shorts only

A short position is essentially a bet that an asset will lose its value, while a long position is a wager that it will rise.

The most bearish shift over the past five weeks was the increase of net shorts by more that 17,000 contracts from the previous week. It was driven almost entirely in part by new short positions and not longs being cut.

Funds increased their gross long positions by more that 17,000 contracts. This year, there have been only four more significant moves. The total short position of funds, which is almost 125,000 contracts, is the largest since November 2013.

Yoshio Takahashi, NatWest’s chief economist, wrote Friday that “the effects of yen-buying intervention have already diminished.” “Yen buying intervention is meant to control the speed and not actively bolster the currency, so investors are less vigilant against intervention.”


Japanese officials may welcome the latest interventions to flush out short positions. They want to suppress speculation and “excessive” volatility.

However, a look at CFTC’s shifting positioning around the Sept. 22, intervention – Japan’s first official yen purchase in 24 years – and subsequent moves in yen’s currency rate are instructive.

The CFTC specs reduced their short yen positions by nearly 11,000 contracts the week after. This was the largest reduction in seven consecutive weeks, and it was also one of the five largest this fiscal year.

It did not materially reduce the net speculation wager, as funds also significantly reduced their long-yen position.

Funds were able to reduce their net short yen position only by a few thousand contracts after the Sept. 22 intervention. According to the CFTC, they were able to again load up on short yen positions as a result of their confidence.

(CFTC yen positions – net & weekly change

BOJ/MOF spent nearly $20 billion on that intervention. Authorities have not yet confirmed Friday’s and Monday’s interventions. However, billions more are possible to have been spent.

Japan has $1.25 trillion in FX reserves. Tokyo will not be tempted to tap into this stash. Japan could sell Treasuries to raise U.S yields, make the dollar more attractive, appreciate the dollar, and Japan may be forced to intervene even larger to support the yen.

Speculators are aware of this. They also know the BOJ is not the G10 central banks that will raise interest rates. However, the Fed is expected to raise rates to around 5.5% according to current market expectations.

Analysts Morgan Stanley (NYSE:) They estimate that the dollar/yen level consistent with a Fed terminal rate of 5% is about 150.00. They are reducing their bullish stance on dollar/yen but “also recommend buying the dip if intervention again causes USD/JPY drop well below levels consistent the envisaged Fed Terminal Rate.”

(The author is a Stocksak columnist.

Similar columns:

– Japan’s ‘YCC’ (Oct.20) is a warning to yen and global market ructions.

– King dollar delivers bumper Q3 for macro hedge funds (Oct. 9)

News Source and Credit

Stocksak Editorial

We are a financial blog that covers topics such as investing, saving, spending, and earning more money. Please feel free to peruse our site and read any of the articles that catch your interest.

Related Articles

Leave a Reply

Your email address will not be published.

Back to top button