Hedge funds turn bullish on the yen for the first time in over a year, net long positions rise to about $1.6 billion as exchange rate volatility intensifies after Japan and U.S. interest rate hikes

According to Zhitong Finance APP, the latest data from the US Commodity Futures Trading Commission (CFTC) shows that hedge funds have turned bullish on the yen for the first time since July 2025. Just a few weeks ago, US and Japanese authorities intervened in the market to support the yen. As expectations for subsequent policy paths changed, leveraged funds began to bet on further appreciation of the yen.

For the week ending September 15, leveraged funds completely closed out previous net short positions on the yen and began building long positions. According to a media summary of CFTC data, these funds currently hold around 251 billion yen (approximately $1.6 billion) in exposure betting on yen appreciation.

In terms of contract numbers, leveraged funds’ yen positions shifted dramatically from a previous net short of 53,255 contracts to a net long of 20,069 contracts, indicating a significant reversal in speculative sentiment towards the yen. This is also the first time since July 2025 that hedge funds as a whole have turned bullish on the yen.

This change in positions is noteworthy because CFTC data reflects how investors use derivatives to position themselves in the global forex market, which has a daily trading volume of about $9.5 trillion. This data provides an important reference for observing exchange rate expectations among hedge funds and asset management institutions.

Hedge funds are turning bullish on the yen just as both the Federal Reserve and the Bank of Japan raised rates this week.

This week, the Federal Reserve raised the target range for the federal funds rate by 25 basis points to 3.75%-4.00%. The Fed stated that US economic activity continues to expand at a solid pace, inflation remains high, and this policy adjustment aims to bring inflation back to the 2% target more promptly.

On September 18, the Bank of Japan also announced an adjustment to its money market operation policy. According to the Bank of Japan’s website, after the policy change, it will guide the unsecured overnight call rate to remain around 1.25%.

However, the policy signal from the Bank of Japan did not fully meet the expectations of some market participants. Some investors had hoped the Bank of Japan would more clearly signal further future rate hikes, which has put short-term pressure on funds that previously bet on yen appreciation.

On Friday, the yen fell as much as 1.3% against the US dollar, then pared its losses, trading near 1 US dollar to 156.80 yen at the New York close. In other words, although hedge funds have already shifted significantly to long yen positions in advance, the Bank of Japan’s less-than-expected signals for future rate hikes have temporarily put these bets to the test.

Meanwhile, the yen's continued pressure has once again raised market concerns about possible intervention by Japanese authorities in the forex market. According to reports, the Bank of Japan has been inquiring with market participants about current forex market exchange rate levels. Such inquiries are usually seen by the market as a potential step ahead of formal intervention by Japanese authorities.

This development is especially noteworthy because just a few weeks ago, US and Japanese authorities already took action to support the yen. Against this backdrop, if the yen comes under renewed rapid depreciation, traders will pay even more attention to whether Japanese officials will intervene again.

It's not just leveraged funds — large asset management institutions have also clearly increased their bets on yen appreciation.

For the week ending September 15, asset management institutions increased their net long yen positions by 54,179 contracts, bringing the overall net long position to 54,821 contracts. This means that different types of institutional funds have recently been increasing their bullish exposure to the yen.

In contrast, movements in positions for other major currencies were more mixed.

Leveraged funds increased net short euro positions by 4,974 contracts to 51,355; net long pound positions decreased by 21,663 to 18,698; while net long Australian dollar positions increased by 10,920 to 59,299. Meanwhile, net short Canadian dollar positions decreased by 15,448 to 41,404, and net long Mexican peso positions increased by 7,946 to 90,125.

On the asset management side, net long euro positions declined slightly by 906 to 275,565; net short pound positions decreased by 17,119 to 88,959; and net short Canadian dollar positions fell significantly by 21,287 to 8,846.

It is worth noting that as yen long positions have increased rapidly, speculative funds have also recently reduced their bullish stance on the US dollar. As of September 15, speculative funds including asset managers and non-commercial traders held the lowest overall bullish position on the US dollar since March this year.

But subsequently, the US dollar's performance has diverged sharply from these positioning changes, posting its largest weekly gain in about three months. This means that some traders who had reduced dollar longs and turned bullish on the yen may now find themselves temporarily on the wrong side of the market.

From a broader perspective, this CFTC data reflects a clear shift in the forex market: after the yen was suppressed for a long time by the US-Japan rate differential, institutional investors are now increasingly focusing on the normalization of Japanese monetary policy and the potential support from official intervention in the currency market.