Yen's changing fortunes might finally be spooking the bears FILE PHOTO: Holograms, which show different images and colours depending on the angle at which they are viewed, are seen on the new Japanese 1,000 yen banknote as the new note is displayed at a currency museum of the Bank of Japan in Tokyo, Japan July 3, 2024. REUTERS/Issei Kato/Pool/File Photo Reuters By Dhara Ranasinghe, Rae Wee and Atsuko Aoyama Fri, September 4, 2026 at 8:38 AM PDT 5 min read JPY=X By Dhara Ranasinghe, Rae Wee and Atsuko Aoyama LONDON/SINGAPORE/TOKYO, Sept 4 (Reuters) - Six weeks after hitting a four-decade low against the dollar, the tide appears to be turning for the battered yen as a host of factors finally smoke out traders who have spent years betting against the Japanese currency. While central bank rate hikes and record currency intervention have failed to provide lasting support for the yen, new tailwinds from capital repatriation, unwinding carry trades and U.S. political pressure are now giving short speculators cause to rethink their long-term game. The yen is on track for a roughly 2% surge against the greenback this week the most since a rare joint U.S. and Japan intervention at the end of July to lift the yen. "The market psychology around the yen appears to be changing," said Rong Ren Goh, a fixed income portfolio manager at Eastspring Investments. "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." The Bank of Japan is expected to lift its key rate by 25 basis points (bps) this month and markets are also contemplating the possibility of a 50-bps hike or a series of rapid increases in coming months. Nevertheless, a 50-bps September hike is still seen as extremely unlikely, particularly under Governor Kazuo Ueda's cautious leadership. All the same, the shift in mood is backed up by money flows. Data from Citigroup indicate positioning on the yen has flipped from bearish to bullish since the start of August, with interbank flow data showing leveraged funds, banks and real-money investors all net-buying yen this week. The convergence of central bank policy, investment flows and speculative positioning is adding to volatility. The yen is also up almost 2% against the euro and Australian dollar this week. Stephen Jen, CEO and co-CIO of Eurizon SLJ Asset Management, said the risk of a rapid unwind of yen-based carry trades is rising, in a similar way to 1998 when the collapse of Long-Term Capital Management forced banks and hedge funds to rapidly deleverage. The yen has long been the favoured currency for the carry trade, where investors borrow cheaply in yen to invest elsewhere. "When a currency is so extremely undervalued, and positioning is so extended, movements like this one will occur increasingly frequently before a big move," Jen said. "It's a bit like earthquakes. The tectonic plates are grating on each other with great forces." Story...
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