Column-Japan faces battle royale with funds on yen: McGeever By

By Jamie McGeever

ORLANDO, Fla. (Reuters) – Japan’s historic FX market intervention on Sept. 22 failed to stem the wave of speculative bets against the yen, culminating in a fresh 32-year low through 150.00 per dollar and a second round of intervention last week.

Against the backdrop of a yawning U.S.-Japanese interest rate and bond yield chasm, however, hedge funds and speculators are unlikely to be deterred by the Bank of Japan and Ministry of Finance from betting on further yen weakness.

Right on cue, a suspected third bout of BOJ/MOF intervention in early Asian trading on Monday after the yen had slumped back towards the 150.00 level underscores the fight Japan has on its hands to support its currency.

(Dollar/yen & BOJ interventions https://fingfx.thomsonreuters.com/gfx/mkt/byvrlolerve/jpy.png)

The evolution of Commodity Futures Trading Commission positioning since last month’s intervention, and a deeper dive into the latest CFTC figures for the week to Oct. 18 – three days before BOJ/MOF’s second salvo – back this up.

The most recent CFTC report shows that funds increased their net short yen position to almost 95,000 contracts, the largest bet against the currency since early June. It is a wager worth almost $8 billion.

(CFTC yen positions & https://fingfx.thomsonreuters.com/gfx/mkt/egvbynybjpq/CFTCJPY.jpg)

(CFTC yen positions – shorts only https://fingfx.thomsonreuters.com/gfx/mkt/dwpkdgdqlvm/CFTCJPYSHORTS.png)

A short position is essentially a wager that an asset’s price will fall, and a long position is a bet it will rise.

The increase of more than 17,000 contracts from the prior week in net shorts was the most bearish shift in five weeks. Significantly, it was driven almost entirely by fresh short positions rather than longs being cut.

Funds increased their gross short positions by more than 17,000 contracts. There have only been four bigger moves this year. In aggregate, funds’ short position of almost 125,000 contracts is the largest since November last year.

“The effects of yen buying intervention have already diminished,” NatWest’s Yoshio Takahashi wrote on Friday. “Yen buying intervention is intended to control the speed of currency movements and not to actively bolster the yen, so investors are less on guard against intervention.”

FED-BOJ POLICY CHASM

The latest bouts of intervention may flush out some short positions, which would be welcomed by Japanese officials keen to suppress speculation and “excessive” volatility.

But a look at CFTC positioning shifts around the Sept. 22 intervention – Japan’s first official yen purchases in 24 years – and subsequent moves in the yen’s exchange rate are revealing.

In the following week, CFTC specs cut their short yen positions by almost 11,000 contracts. That was the biggest reduction in seven weeks, and one of the five…