Hedge funds turn net long on yen for first time since July 2025

Hedge funds have flipped bullish on the Japanese yen for the first time since July 2025, building roughly ¥251 billion ($1.6 billion) in long positions, according to Commodity Futures Trading Commission data released Friday. The shift — from a net short of 53,255 contracts to a net long of 20,069 contracts in the week ending September 15 — marks a dramatic reversal in speculative sentiment that comes just weeks after U.S. and Japanese authorities mounted their first coordinated currency intervention since 1998.bloomberg+1

A Crowded Trade Unwinds

The repositioning follows months of sustained bearish bets against the yen, driven by a wide interest-rate gap between the United States and Japan. According to Jefferies' analysis of Bank for International Settlements data, cross-border yen borrowing — a hallmark of carry-trade strategies — had surged to a record ¥360 trillion ($2.35 trillion) by March. Japan's Ministry of Finance data show authorities deployed ¥15.4 trillion (roughly $96.4 billion) from late July to late August to support the currency, setting a monthly record for intervention.news.futunn

Asset managers joined the shift. As of September 15, they increased net long yen positions by 54,179 contracts to 54,821 contracts, while speculative traders collectively cut bullish dollar bets to their lowest level since March.moomoo

Central Banks Test the New Bet

The hedge funds' pivot came just ahead of a consequential week for central banks. On September 16, the Federal Reserve raised its benchmark rate by 25 basis points to a range of 3.75%–4.00%, its first hike since 2023. Two days later, the Bank of Japan lifted its policy rate from 1.0% to 1.25% — a 31-year high — by a 7-2 vote. Governor Kazuo Ueda said Japanese monetary policy "has entered a new phase" but stopped short of explicitly signaling further near-term tightening, disappointing traders who had hoped for a more hawkish tone.reuters+2

The yen weakened as much as 1.3% against the dollar on Friday, with USD/JPY briefly breaking above 158 before the Bank of Japan conducted a "rate check" with market participants — widely interpreted as a precursor to intervention. Within roughly an hour, the pair dropped back to close near 156.80 in New York.news.futunn+1

Carry Trade at a Crossroads

The interest-rate spread of 250 to 275 basis points between U.S. and Japanese benchmarks means the structural incentive for yen-funded carry trades has not vanished. But analysts are divided on what comes next. Wells Fargo's ↘ 1.50% Chidu Narayanan recommends shorting the yen, arguing the bar for the BOJ to exceed hawkish expectations is high, while State Street's ↘ 0.17% Ji-Wook Choi sees USD/JPY reaching 152.5 within three months as the BOJ continues tightening. With Japan entering a holiday period and trading volumes poised to thin, Alex Cohen of Bank of America ↘ 0.36% warned that "today's exchange-rate floor test is yet another warning to the market" — and that authorities have signaled willingness to deploy substantial reserves if the yen slides again.news.futunn