Hedge Funds Cut Yen Shorts at Fastest Pace Since 2007 Before Fed

Updated on
  • Yen speculative short positions pared to lowest since April
  • Dollar can't rise "without an event to change the market mood"

Hedge funds and other large speculators have slashed bets on yen declines at the fastest pace since 2007 as U.S. jobs data for August failed to decisively set the stage for the Federal Reserve to raise interest rates next week.

Positions that profit from yen weakness were cut for a third consecutive week in the period through Sept. 1, data from the Commodity Futures Trading Commission showed. Net yen shorts fell to 15,555 contracts, from 105,226 three weeks earlier on Aug. 11.

U.S. nonfarm payrolls data showed 173,000 jobs were added in August, fewer than the 217,000 forecast in a Bloomberg survey of economists and down from a revised July total of 245,000.

“The undershoot of the consensus figure for the nonfarm payrolls on Friday definitely contributes to a growing sense of negativity about where the U.S. economy is,” said Angus Nicholson, market analyst at IG Markets Ltd. “It’s largely taken the possibility of a September Fed rate hike off the table.”

Traders saw a 30 percent chance as of Friday of a rate increase when the Fed meets Sept. 16-17, according to data compiled by Bloomberg. The calculation is based on the assumption that the benchmark will average 0.375 percent after the Fed moves.

Easing Prospects

Japan’s currency was the best performer against 10 developed-nation counterparts in the past week, according to Bloomberg Correlation-Weighted Currency Indexes. The Bank of Japan has not signaled any intention to boost stimulus that tends to devalue the currency, while the European Central Bank last week indicated it may expand its accommodative stance.

“The yen certainly has further strength, particularly in the wake of the ECB meeting, where the ECB indicated that they would have to step up stimulus perhaps later in the year, and the fact that the nonfarm payrolls number came in under consensus has pushed the likelihood of the Fed rate hike back,” Nicholson said.

The Bloomberg Dollar Spot Index, which tracks the greenback versus 10 major peers, was little changed at 1,213.76 as of 12:29 p.m. in Tokyo from 1,213.91 in New York on Friday.

“The market is not in a mood to buy up the dollar,” said Daisuke Karakama, chief market economist at Mizuho Bank Ltd. in Tokyo. “The dollar can’t rise against the yen as we head toward Sept. 17 without an event to change the market mood.”