BlueBay among bears unnerved by latest yen slide By Reuters

By Nell Mackenzie and Carolina Mandl

LONDON/NEW YORK (Reuters) -The precipitous slide in Japan’s currency has run so far and fast it’s spooking big investors, and some are cutting bets that it will decline further, anticipating policymakers may soon step in to try and arrest the freefall.

Those who have sold the yen short have reaped juicy profits this year. It slumped to a 24-year low on Wednesday and has lost some 30% since the beginning of last year as U.S. interest rate expectations have gone up and Japanese rates have gone nowhere.

But this week’s almost 3% drop, without any particular trigger, was enough for some funds to call time on the first leg of their wager that Japan would have to quit its policy of capping bond yields as its global peers push rates higher.

On Thursday the yen was at 143.40 per dollar, up slightly but not far from its lows.

“We think we are getting close to an inflection point of policy,” said BlueBay Asset Management chief investment officer Mark Dowding, especially as inflation starts to pick up.

“We have maintained a short stance in JGBs as an expression of this and today have actually moved long yen,” he said, referring to the government bond market.

“We think the slide in the yen has gone too far too fast and we think that we will hear something from policymakers pretty soon.”

Uneasy calm in the market after a two-session selling storm suggests the feeling is perhaps more widespread, or at least that yen shorts are wary of adding to their positions.

Positioning data shows yen shorts have been reduced steadily since April.

“We’re not shorting the yen anymore and we’re not long,” said Akshay Kamboj, co-chief investment officer at hedge fund Crawford Ventures.

“We’re just breathing and watching – whenever we see the right indicators, we will take some action.”

Government officials have been toughening verbal threats of intervention and issued their strongest warning to date on Thursday. Without action, however, the yen was left vulnerable at about 144 to the dollar.

“The big 1998 dollar/yen high at 147.66 … is the natural target,” said Deutsche Bank (ETR:) strategist Alan Ruskin, adding intervention risks would increase as it neared. “It would not be surprising to see substantial yen longs set up on its approach.”

MOMENTUM

The yen has not been alone in sliding lately as the U.S. dollar has zoomed to multi-decade highs on the euro and sterling on a combination of risk aversion and interest rate expectations.

But it has suffered most because Japan is alone among major economies in enforcing near-zero interest rates while the rest of the world scrambles to hike them to contain inflation.

After years of huge asset buying failed to push inflation to its 2% target, the Bank of Japan adopted yield curve control in 2016, where it guides short-term interest…