Hedge funds turn bearish on yen again as Japan-US rate gap persists

Hedge funds have swung back to bearish positions on the Japanese yen, rebuilding short bets as the currency continues to weaken against the dollar despite recent interventionist rhetoric from Japanese officials, according to a report by Bloomberg.Leveraged traders held a net short yen position equivalent to about JPY210bn ($1.3bn) in the week ending 29 September, according to Commodity Futures Trading Commission data. The shift saw speculative investors erase the net bullish position they had built up over the previous two weeks.The yen has declined against the dollar for a third consecutive week, with traders continuing to question whether the Bank of Japan is prepared to tighten monetary policy aggressively enough to support the currency.The BOJ raised interest rates as expected last month, but its policy guidance was viewed as relatively cautious. The sizeable interest-rate differential between Japan and the US remains a key factor weighing on the yen and continues to make dollar-denominated assets comparatively attractive.CFTC data also showed leveraged funds increasing their bullish exposure to the US dollar during the latest reporting period, while hedge funds moved to a net short position in sterling for the first time since 2024. The pound subsequently fell to a three-month low against the dollar.Leveraged funds switched their yen position to a net short of 16,809 contracts from a net long of 4,472 contracts. They also increased their net euro short by 23,640 contracts to 82,445.Sterling positioning shifted from a net long of 6,519 contracts to a net short of 5,377, while 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.Elsewhere, leveraged funds increased their Canadian dollar short position by 23,396 contracts to 72,519 and reduced their Swiss franc short by 1,603 contracts to 17,017. Their net Mexican peso long increased by 1,417 contracts to 80,677.Asset managers took a markedly different stance on the yen. Their net long position increased by 9,463 contracts to 51,961, highlighting the divergence between longer-term investors and more leveraged speculative traders.Asset managers also modestly increased their net euro long to 245,160 contracts, while raising their sterling short by 11,740 contracts to 125,424. They added to short positions in the Australian and New Zealand dollars and increased their Canadian dollar and Swiss franc shorts.