(Bloomberg) -- Hedge funds ramped up bearish yen bets to a three-month high on expectations Japan would languish in a world where developed market peers are racing to hike interest rates.
Leveraged funds added 18,836 net short contracts last week -- the largest increase since last March, data from the Commodity Futures Trading Commission show. The positions came during a turbulent week for markets, driven in part by hotter-than-expected US consumer prices that turbocharged expectations of aggressive Federal Reserve rate hikes while the Bank of Japan is seen standing pat.
The yen has tumbled 20% against the dollar this year, the worst-performer among Group-of-10 currencies as the widening yield gap between policy rates in the US and Japan spur investors to ditch the once-haven asset. That spread is set to expand even further this week with the Fed seen potentially considering a full percentage point hike at its policy meeting, while the BOJ is overwhelmingly expected to maintain rock-bottom rates.
Japan’s Contradictory Stance Leaves Yen at Risk of Further Slide
“Speculative selling of the yen is readily justified by the ongoing widening in US-Japan yield differentials,” said Ray Attrill, strategist at National Australia Bank Ltd. in Sydney. “Until or unless something happens to arrest or reverse this spread widening, the yen is susceptible to additional selling pressure.”
The yen tumbled to within a whisker of the closely-watched 145 per dollar level earlier this month, spurring the BOJ to ask for an indicative price at which it could buy the yen to help stem the currency’s losses. The yen was trading little changed at 142.82 against the dollar in Asia Monday.
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