Ignoring Strong US Employment Data, Hedge Funds Shift Bullish on the Japanese Yen
Traders believe that as the "Buy Japan" trading strategy gains traction, hedge funds are shifting direction and increasing their bets on a stronger yen, even though robust US employment data has weakened the market's expectation for a Federal Reserve rate cut this year.
The yen was on track for a four-day winning streak against the US dollar on Thursday, withstanding upward pressure on the dollar following the release of the non-farm payrolls report. Just last week, hedge funds rebuilt yen short positions ahead of Japan's House of Representatives election, betting that Prime Minister Sanae Takaichi's Liberal Democratic Party would win and push for expansionary fiscal policy.
According to data from the Depository Trust & Clearing Corporation (DTCC), on Wednesday, trading volume for USD/JPY put option contracts with notional amounts of $100 million or more was about 50% higher than for similar call options. The premium for USD/JPY put options expiring in the next month relative to call options climbed to the highest level since February 2.
Antony Foster, Head of G-10 Currency Trading at Nomura International, said that hedge fund interest in betting on a weaker USD/JPY is heating up. He added that there is also demand in the market to buy the yen against other currencies such as the Australian dollar and the Swiss franc.
Following the historic election victory of the Liberal Democratic Party, the yen initially came under pressure, but quickly rebounded after Japanese authorities stated that they would respond to exchange rate fluctuations in accordance with the US-Japan joint statement.
Nathan Swami, Head of Asia-Pacific FX Trading at Citi based in Singapore, said that the yen's rebound coincided with the closing of short-term USD/JPY long positions ahead of the US employment report, with both hedge funds and asset management firms selling the currency pair.
Editor: Yu Jian SF069
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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