Global Forex Speculators Shift to Net Long on Japanese Yen Amid Rate Hike Hopes
Global FX speculators shift to a net long position on the Japanese yen for the first time since February, driven by expected BoJ rate hikes and rising bond yields.
Global foreign exchange traders are shifting direction: recent data from the Commodity Futures Trading Commission (CFTC) shows that speculators have moved to a net "long" position (betting on a rise) on the Japanese yen for the first time since late February.
Non-commercial positions stood at 10,796 long contracts in the week ending September 8—a sharp turnaround compared to short positions totaling 92,227 contracts the previous week.
The strengthening of the currency comes amid growing expectations that the Bank of Japan (BoJ) will accelerate the pace of interest rate hikes as early as its upcoming meeting this weekend, with the market pricing in a high probability of a 25-basis-point rate hike. Concurrently, a combination of rising yields in Japan—with 10-year government bonds reaching a yield of 3% for the first time since 1996—is encouraging Japanese institutional investors to repatriate funds.
Current moves are destabilizing the yen carry trade—a strategy where investors borrow yen at zero interest to invest in higher-yielding assets worldwide, including in the USA. The narrowing of interest rate differentials undermines the viability of this move, forcing investors to close positions and sell risk assets. The pressure is also felt in the crypto market, where traders are closely monitoring fears that more expensive yen financing will weigh on the price of Bitcoin.
The dollar-yen exchange rate touched 152.89 yen per dollar, the strongest level for the Japanese currency since mid-February, completing a surge of about 5% within a few days. This follows last July when the yen weakened to a four-decade low of 163.99 yen per dollar, prompting unusual intervention measures by financial authorities in Tokyo and Washington to curb the currency's depreciation.
