[FX] Could hedge funds shift to a yen-buying strategy?

Hedge funds’ yen positions shifted modestly from a net short position of 90,000 contracts as of 1 September, equivalent to a net long U.S. dollar position, to a net long yen position of 10,000 contracts as of 8 September, equivalent to a net short U.S. dollar position. The move is seen as having tracked the sharp decline in USD/JPY from the ¥160 range to the ¥152 range. Some observers have suggested that the unwinding of speculators’ trading positions may have affected the foreign exchange market.

The shift appears to have been driven largely by the aim of avoiding further losses on speculative positions. The 120-day moving average, regarded as a reference point for the breakeven level, was in the ¥159 range during the week of 7 September. If the yen falls below this level and the decline continues, losses on the positions could accelerate.

USD/JPY approached its 2026 low of ¥152, but some observers say the conditions that could trigger further losses differ from those during past intervention episodes because the 120-day moving average is at a higher level. The current direction of hedge fund positions could change again depending on long-term interest rate trends and movements in the U.S.-Japan interest rate differential.

Although unrealized gains on short U.S. dollar/long yen positions may be increasing, many observers believe that additional catalysts are needed for the yen to move below ¥152. Attention is focused on whether hedge funds will resume expanding their yen-buying positions, depending on upcoming market catalysts.