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Hedge funds look to rebuild yen shorts after intervention fades
The yen returned to about JPY160 per dollar less than two weeks after coordinated US-Japan intervention, with carry traders seeing a renewed window for bearish positions.
Hedgeweek, citing a Bloomberg report, said currency-focused hedge funds are beginning to rebuild bearish yen exposure after Japanese support for the currency proved temporary. The yen has given back much of the gains from the most recent coordinated US-Japan intervention, moving back to around JPY160 per dollar less than two weeks after the operation.
With Japan’s interest rate still around 1%, the trade remains attractive for carry strategies. These involve borrowing yen at low rates and investing in higher-yielding currencies, and traders often re-establish short positions when intervention briefly strengthens the yen.
Hedge funds had cut short bets sharply after the intervention, reducing bearish yen exposure by roughly half through 4 August. But market participants including JPMorgan Private Bank and State Street Bank and Trust said some investors are already returning to yen-funded carry strategies.
The report also pointed to continuing pressure on the yen from fiscal concerns, while noting that yen-funded shorts against several higher-yielding currencies have generated returns of more than 10% this year. It added that Tokyo has been estimated to spend about $34 billion supporting the yen on 31 July, following an estimated $53 billion operation the previous day, with policymakers potentially facing another test if the dollar moves toward about JPY162 per dollar.