Hedge funds boost yen bets as buy Japan trade strengthens — Bloomberg

Funds flip long yen as “buy Japan” momentum builds.

Summary:

• Hedge funds are rebuilding bullish yen positions, per Bloomberg.

• USD/JPY falls for a third straight session despite strong US jobs data.

• Options markets show rising demand for downside dollar-yen protection.

• “Buy Japan” narrative seen supporting yen alongside equities.

• Election clarity and intervention rhetoric add to stability theme

Hedge funds are reversing course and rebuilding bets on a stronger yen as the “buy Japan” theme gathers traction, even after robust US jobs data tempered expectations for near-term Federal Reserve rate cuts, according to traders cited by Bloomberg (gated).

The yen rose for a third consecutive session against the dollar on Wednesday, shrugging off broader dollar strength following the US employment report. The resilience marks a notable shift in positioning. As recently as last week, macro funds had been rebuilding short yen exposure ahead of Japan’s national election, anticipating renewed currency weakness if Prime Minister Sanae Takaichi secured a mandate to pursue expansionary fiscal policies.

Instead, investor sentiment appears to have flipped.

Options market activity underscores the change. Trading volume in large dollar-yen put contracts, which gain value if USD/JPY declines, ran roughly 50% higher than comparable call options on Wednesday, according to Depository Trust & Clearing Corporation data cited by Bloomberg. The premium to hedge or speculate on a fall in the pair over the next month climbed to its highest level since early February, signalling growing demand for yen upside exposure.

Market participants say hedge fund appetite for dollar-yen downside has increased markedly. Traders also report demand for the yen against currencies such as the Australian dollar and Swiss franc, suggesting the shift is not limited to USD crosses.

The repositioning aligns with a broader “buy Japan” narrative that has seen renewed interest in Japanese equities and perceptions of greater political stability following the Liberal Democratic Party’s decisive election victory. The currency initially weakened after the vote but rebounded after Finance Minister Satsuki Katayama signalled that authorities would respond to excessive FX moves in line with US-Japan understandings.

Traders note that both hedge funds and asset managers unwound short-term bullish dollar-yen positions ahead of the US payrolls release. Options positioning has also turned more negative on USD/JPY, with downside risk reversals strongly bid.

For now, the yen’s ability to strengthen alongside firmer US data suggests positioning — rather than macro divergence alone — is driving the move.