Surge in Yen Trading as Hedge Funds Exit Dollar Positions
Amid market volatility, hedge funds are reducing dollar exposure and pivoting towards the Japanese yen (JPY). Data from the Depository Trust & Clearing Corp. shows a surge in interest in the yen on Wednesday, making it the most-traded currency against the dollar.
Option trading volume on the yen has nearly doubled its previous high this year, as the currency strengthens versus major peers. This rally follows better-than-expected Japanese wage data, which bolsters the case for further interest rate hikes by the Bank of Japan (BOJ).
"We've seen significant interest in USD/JPY downside trades targeting the 147-150 region," said Sagar Sambrani, a senior foreign-exchange options trader at Nomura International.
The dollar-yen pair closed at 152.61 on Wednesday after hitting a low of 152.12. The BOJ raised rates last month, and swap markets indicate a high probability of another increase in July.
Comments from BOJ board member Naoki Tamura further buoyed the yen. Tamura suggests raising the benchmark rate to approximately 1% by the end of the fiscal year in March 2026.
"While the Fed may not ease rates as much as expected, positive developments in Japan will narrow the yield gap and support the yen," said Helen Given, a foreign-exchange trader at Monex.
Meanwhile, Bloomberg's gauge of the dollar has declined for the second consecutive day, reflecting a reduction in long dollar positions. Antony Foster, head of Group-of-10 spot trading at Nomura International, attributes this to the delay in implementing tariffs.
Falling US yields have also contributed to the dollar's weakness, hitting new lows for 2025 on Wednesday. Treasury Secretary Scott Bessent emphasized the administration's focus on 10-year Treasury yields for lowering borrowing costs.