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Hedge funds unwind yen shorts as BOJ hawkishness lifts the yen
The yen jumped more than 2% against the dollar to a one-month high, while CME data showed call options on dollar-yen outpaced puts by over 2.5 times on Thursday.
Hedge funds are reducing bearish yen exposure as expectations for additional Bank of Japan tightening strengthen the Japanese currency, according to Hedgeweek, citing Bloomberg. The yen rose more than 2% against the dollar on Thursday, reaching a one-month high and moving closer to levels last seen in May after Japanese authorities intervened.
The shift comes alongside more hawkish signals from BOJ Governor Kazuo Ueda and board member Hajime Takata, with markets lifting expectations for further rate increases. Nomura noted the BOJ could deliver three consecutive hikes through December in an extreme scenario where continued yen weakness adds pressure for tighter policy.
For leveraged investors, a stronger yen increases the cost of repaying yen-funded carry trades and can also raise the risk of faster position unwinds. Hedgeweek also pointed to options activity, with CME data showing dollar-yen call options expiring this month trading at more than 2.5 times the volume of puts on Thursday.
Japanese rates have moved higher as well, with two-year government bond yields up about 14 basis points over the week. Swap markets are pricing a 25-basis-point BOJ increase at the Sept. 18 meeting and nearly three more moves of the same size by July, a faster pace than the central bank’s roughly two hikes per year since the start of 2024, the outlet said.