Funds boost yen short bets to $11bn despite intervention

Leveraged funds and asset managers increased combined short positions in the Japanese yen to $11 billion, the largest level since July 2024. Short exposure rose for a third consecutive week, with about $5 billion added over that period.

The gains followed the yen’s slide past 160 per U.S. dollar in late April. Between late April and late May, authorities sold ¥11.73 trillion ($73.6 billion) of dollars in an effort to support the yen. Intervention moved the exchange rate from roughly 160.725 to about 155.50 on April 30 and toward 155 by May 6, but the currency weakened back toward 160 in early June.

Traders cited the wide interest rate gap between Japan and the United States as a key structural factor behind the persistent short positions. The Bank of Japan’s policy rate stands at 0.75 percent, below U.S. rates, encouraging investors to borrow low-cost yen and buy higher-yielding assets, a strategy known as the carry trade.

Market flows data show portfolio managers and leveraged funds increased bearish bets despite the scale of Tokyo’s dollar sales. Some participants said market strains tied to the Middle East conflict contributed to the yen’s return toward 160 in early June.

Finance Minister Satsuki Katayama reiterated the government remains prepared to act in foreign exchange markets, saying, “As for foreign exchange, we continue to maintain our stance that we stand ready to take appropriate action at any time, as needed.”

The Bank of Japan is scheduled to meet on June 16. Some market participants expect a possible rate rise to around 1 percent, which would narrow the gap with U.S. rates and could prompt unwinding of carry trades. When those positions are unwound, investors often reduce risk exposure in other asset classes, including cryptocurrencies such as Bitcoin.

Large official dollar sales, rising short positions and the prospect of BOJ policy changes have left the yen’s path sensitive to policy moves, market positioning and external shocks.