The Bank of Japan's interest rate hike still fails to impress the market! Hedge funds slash yen long positions by nearly 80%, while dollar long positions increase significantly

According to Zhihui Finance APP, after the Bank of Japan failed to provide clear signals of further interest rate hikes to the market, hedge funds sharply reduced their bullish bets on the yen. Data released on Friday by the U.S. Commodity Futures Trading Commission (CFTC) showed that as of the week ending September 22, leveraged funds held net long positions in the yen worth about 55.9 billion yen (approximately $355 million), a drop of nearly 80% from the previous week.

This position change is particularly noteworthy because just the week before, hedge funds had turned net long on the yen for the first time since mid-2025. Within just one week, traders rapidly withdrew most of their bullish bets, indicating that the latest policy signals from the Bank of Japan failed to meet market expectations for further monetary tightening.

On September 17, as expected by the market, the Bank of Japan raised interest rates, but its policy stance was not as hawkish as traders had hoped, nor did it provide a clear commitment to further hikes. As a result, the yen subsequently weakened.

CFTC data shows that as of the week ending September 22, leveraged funds reduced their net long yen positions by 15,597 contracts, leaving just 4,472 contracts. In value terms, their bullish yen position dropped nearly 80% from the previous week's level to 55.9 billion yen.

The still considerable interest rate gap between Japan and the United States remains an important factor suppressing the yen. Meanwhile, Japanese markets were closed for public holidays earlier this week, reducing local market activity to some extent. However, the yen saw a marked rebound on Friday, rising as much as 1.2% to 156.94 yen per U.S. dollar. Previously, Japanese and U.S. officials had discussed the issues caused by the yen's weakness, and related comments reignited market attention on exchange rate policy.

In stark contrast to the rapid retreat from yen longs, speculative funds' bullish sentiment toward the U.S. dollar has significantly increased. As of the week ending September 22, speculative funds, including asset managers and non-commercial traders, saw their net long dollar positions more than triple from the previous week. Meanwhile, the dollar just posted its strongest two-week rally in six months.

The dollar's strength is closely tied to recent changes in Federal Reserve policy expectations. Compared to the Bank of Japan's cautious statements on further rate hikes, the sizable interest rate differential between the U.S. and Japan continues to support the dollar and has weakened the previous appeal of betting on yen appreciation.

CFTC data also shows that leveraged funds not only reduced their yen longs but also generally took a more cautious stance on several major non-U.S. currencies. As of the week ending September 22, leveraged funds increased their euro net shorts by 7,450 contracts to 58,805 contracts; pound net longs decreased by 12,179 contracts to 6,519 contracts; Australian dollar net longs decreased by 3,615 contracts to 55,684 contracts.

Meanwhile, New Zealand dollar net shorts increased by 2,897 contracts to 5,216 contracts, Canadian dollar net shorts increased by 7,719 contracts to 49,123 contracts, and Swiss franc net shorts increased by 1,956 contracts to 18,620 contracts. Mexican peso net longs decreased by 10,865 contracts to 79,260 contracts.

Asset management institutions showed a similar trend. Their net long yen positions decreased by 12,323 contracts to 42,498 contracts, net long euro positions decreased by 30,892 contracts to 244,673 contracts; net short pound positions increased by 24,725 contracts to 113,684 contracts, net short Australian dollar positions increased by 8,840 contracts to 55,228 contracts.

Among these, changes in New Zealand dollar positions were especially notable, with asset management institutions switching from a previous net long of 10,170 contracts to a net short of 11,485 contracts. In addition, Canadian dollar net shorts increased by 13,987 contracts to 22,833 contracts, while Mexican peso net longs decreased by 7,840 contracts to 45,506 contracts.