Hedge funds rebuild yen shorts as dollar strengthens

Hedge funds swung back to net short positions on the Japanese yen in the week ending Sept. 29, with leveraged traders holding about JPY210 billion ($1.3 billion) of short positions, the Commodity Futures Trading Commission weekly report showed.

Leveraged funds moved their yen position to a net short of 16,809 contracts from a net long of 4,472 contracts the prior week. The yen fell for a third consecutive week versus the dollar over the reporting period. The Bank of Japan raised interest rates at its most recent meeting but maintained cautious policy guidance. The interest-rate gap between Japan and the United States persisted during the period.

CFTC data also showed leveraged funds increased their bullish exposure to the U.S. dollar. Other notable shifts: leveraged funds increased their net euro short by 23,640 contracts to 82,445; sterling flipped from a net long of 6,519 contracts to a net short of 5,377 and the pound fell to a three-month low versus the dollar; net Australian dollar longs were trimmed by 570 contracts to 55,114; net New Zealand dollar shorts fell by 3,762 contracts to 1,454. Canadian dollar shorts rose by 23,396 contracts to 72,519, Swiss franc shorts were reduced by 1,603 contracts to 17,017, and the net Mexican peso long increased by 1,417 contracts to 80,677.

Longer-term investors diverged from leveraged speculators. Asset managers raised their net long yen position by 9,463 contracts to 51,961. They also modestly increased their net euro long to 245,160 contracts, increased their sterling short by 11,740 contracts to 125,424, added to short positions in the Australian and New Zealand dollars, and increased shorts in the Canadian dollar and Swiss franc.

The weekly CFTC report captures open positions in futures and options and is used by market participants to track speculative flows. The shifts in the report period occurred alongside central bank signals, interest-rate differentials and recent currency moves.