Short yen wagers linger due to rate gap

Banknotes of Japanese yen are seen in this illustration picture taken June 15, 2022. REUTERS/Florence Lo/Illustration

TOKYO: The gulf between interest rates in the United States and Japan means traders are still betting against the yen – even after authorities likely intervened in recent weeks to prop up the beleaguered currency.

Hedge funds held more than 77,000 contracts tied to wagers that the yen will fall in the week ending last Tuesday, about twice as many as they did a year ago, according to data released last Friday from the Commodity Futures Trading Commission (CFTC).

Asset managers boosted bearish bets by about 6,500 contracts to nearly 60,000, marking the biggest increase since March, the data showed.

While volatility has eased in recent days, ameliorating some of the impetus for further forays by officials into currency markets, the gulf between Japan’s ultra-low interest rate and US rates stuck at a two-decade high is keeping the pressure on the yen. The currency is the worst-performing among Group-of-10 peers, falling about 12% over the past year. It is also the most shorted among major currencies tracked by the CFTC, Bloomberg-compiled data showed.

It “seems likely the US Federal Reserve cuts once or twice this year and maybe the Bank of Japan hikes again, but that will still leave a large rate gap,” Brad Bechtel, global head of forex at Jefferies Financial Group Inc, said. — Bloomberg

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