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Carry traders rebuild yen shorts after US-Japan intervention
Hedge funds cut bearish yen bets through Aug. 4, but JPMorgan Private Bank and State Street Bank & Trust say some investors are returning to carry trades, with the dollar-yen near 159.46.
LiveMint Markets, citing Bloomberg, reports that the historic joint US and Japan intervention last month has not materially changed the underlying drivers for the yen, which slid back toward about 160 per dollar within two weeks.
The focus is the interest-rate gap, where investors can borrow in low-yield yen and buy higher-yield assets, a carry trade. When intervention lifts the yen, traders can sell it at a better price, even as the yen’s gains from past steps fade.
According to market watchers including JPMorgan Private Bank and State Street Bank & Trust, hedge funds have halved their bearish yen bets through Aug. 4, and some investors are starting to return to carry trades funded by the currency. One example cited is Alpha Binwani Capital founder Ashwin Binwani, who bought the dollar against the yen around 157; the pair was at 159.46 in the report.
State Street’s proprietary data, as described in the piece, show real-money accounts remain positioned for yen-funded carry trades against a range of Group-of-10 currencies, with the largest interest against the Australian dollar, followed by the euro, US dollar, Canadian dollar, and pound. JPMorgan Private Bank’s Yuxuan Tang said unless there is a meaningful turn lower in the dollar and US yields, carry traders may push the dollar-yen to retest 162, while noting repeated intervention can be costly for Japan.