The tide seems to be turning for the battered yen as a number of reasons finally drive away traders who have spent years betting against the Japanese currency, six weeks after it hit a four-decade low versus the dollar.
Although the yen has not been sustained by central bank rate hikes and record currency intervention, short speculators are now having to reconsider their long-term strategy due to new tailwinds from capital repatriation, unwinding carry trades, and political pressure from the United States.
The yen is expected to rise by almost 2% versus the US dollar this week, the highest since a rare combined intervention by the US and Japan at the end of July to strengthen the currency.
“The market psychology around the yen appears to be changing,” stated Eastspring Investments’ fixed income portfolio manager Rong Ren Goh. “Investors seem increasingly reluctant to aggressively short the JPY (yen), particularly with the prospect of a BOJ rate hike in September adding another layer of risk to the trade.”
This month, the Bank of Japan is anticipated to raise its main rate by 25 basis points (bps). The markets are also considering the potential of a 50-bps boost or a string of swift hikes in the upcoming months.
However, a September raise of 50 basis points is still considered highly improbable, especially under the cautious leadership of Governor Kazuo Ueda.
Nevertheless, the change in sentiment is supported by financial movements. Leveraged funds, banks, and real-money investors are all net-buying yen this week, according to Citigroup data, which shows that positioning on the yen has changed from bearish to bullish since the beginning of August.
