Futures Traders Increase Bets on Yen Decline to Most Since 2007

Futures traders increased bets that the yen will weaken against the dollar to the most since July 2007 as speculation rises that the U.S. is moving closer to reducing monetary stimulus.

The difference in the number of wagers by hedge funds and other large speculators on a decline in Japan’s currency compared with those on a gain, known as net shorts, was 95,186 contracts on May 21 compared with 88,407 a week earlier, figures from the Washington-based Commodity Futures Trading Commission show. Bets that the British pound will decline against the greenback increased to the most since at least 1992.

Investors are increasingly expecting the U.S. dollar to rally against its most-traded peers amid speculation that the Federal Reserve will reduce its bond-buying program. The yen has fallen 21 percent against its U.S. counterpart in the past year as the Bank of Japan undertakes an unprecedented stimulus to double the monetary base in two years as it seeks escape deflation.

“The main driver of U.S. interest-rates and the dollar is the expected Fed outlook,” Brian Daingerfield, a currency strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit in Stamford, Connecticut, said in a telephone interview. The Fed is “clearly concerned that the market might get too aggressive in pricing in the end of policy accommodation, when really what the Fed wants to do is slow the pace of easing.”

Bernanke Speaks

The Dollar Index, which Intercontinental Exchange Inc. uses to track the greenback against currencies of six major U.S. trading partners, touched 84.498 yesterday, the highest level since July 2010. The gauge fell 0.1 percent to 83.633 today, and is forecast to increase to 86.1 by the end of the year, according to the median forecast of economists and strategists surveyed by Bloomberg.

Fed Chairman Ben S. Bernanke said in testimony to the Joint Economic Committee of Congress this week that the central bank may taper monthly bond purchases at its next few meetings if it’s confident of sustained gains in the economy. Bernanke also told lawmakers premature tightening of policy may endanger the recovery.

Net shorts on the British pound rose to 76,976 contracts on May 21, compared with 65,355 a week earlier. Those on Australia’s currency increased to to 32,409, from net shorts of 13,450 a week earlier.

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