Hedge funds brace for yen volatility during Silver Week

Hedge funds and currency traders face higher yen volatility as Japan’s three-day Silver Week holiday reduces market liquidity while investors reassess the outlook for further Bank of Japan rate hikes and potential government intervention.

On Monday the yen traded around JPY156.85 to the dollar after losing about 2% last week. Japanese markets are closed Monday through Wednesday for the holiday, shortening trading hours and thinning market depth at a time of renewed focus on policy and official action.

The Bank of Japan raised its policy rate to 1.25% on Friday, the highest level in more than three decades. Two BOJ policymakers voted against the increase. The central bank’s governor gave limited guidance on the timing and pace of additional tightening.

The yen initially weakened after the rate rise, and reports that officials carried out a so-called rate check followed. Japan and the United States intervened jointly in currency markets earlier this year. Finance Ministry data show Japan spent a record JPY15.4 trillion on intervention in the month through Aug. 26.

Positioning data point to concentrated bets in the currency. Speculators increased net long-yen exposure to $9.7 billion in the week to Sept. 15, the largest level since July 2025. That build-up occurred before the BOJ meeting and leaves some funds exposed if the yen resumes its decline.

The Federal Reserve has signaled further tightening, widening the interest-rate gap between the U.S. and Japan. The yen reached about JPY164 to the dollar in July, its weakest level in roughly 40 years, before coordinated intervention helped push it back from those lows.

Market participants say they will monitor any BOJ comments and any official foreign-exchange activity once markets reopen. Hedge funds with yen positions are exposed to thinner liquidity during the holiday and to possible abrupt price moves if authorities intervene.