As the Bank of Japan raises interest rates, hedge funds are bullish on the yen for the first time in over a year.

As the Bank of Japan raises interest rates, hedge funds are bullish on the yen for the first time in over a year.

Hedge funds have made a significant shift in their stance on the yen, turning net long for the first time since July 2025, reflecting a profound change in market sentiment following market intervention by the US and Japanese authorities.

According to Bloomberg, data released by the U.S. Commodity Futures Trading Commission (CFTC) on Friday showed that leveraged traders had closed out their previous short yen positions and begun building bullish positions in the week ending September 15. Bloomberg's compiled data shows that relevant funds currently hold approximately 251 billion yen (about $1.6 billion) in long yen positions.

This shift in stance came before both the Federal Reserve and the Bank of Japan raised interest rates this week. However, the Bank of Japan's statement disappointed some market participants who had bet on continued rate hikes, putting traders who had previously turned bullish on the currency in a passive position. The yen fell as much as 1.3% on Friday before paring losses to close at around 156.80 against the dollar in New York trading. According to Nikkei, the Bank of Japan had solicited opinions from market participants regarding the exchange rate level, a move often seen as a precursor to official intervention.

Hedge funds complete a reversal of stance

CFTC data shows that leveraged traders completely closed out their short yen positions in the week ending September 15 and established long positions, totaling approximately 251 billion yen. This marks the first time since July 2025 that hedge funds have held a net bullish stance on the yen, signifying a significant shift in market sentiment.

This shift occurred weeks after US and Japanese authorities intervened in the market. According to a previous Bloomberg report, US Treasury Secretary Bessent stated that the US involvement in the yen intervention was a "symbolic" move and expressed support for US export competitiveness.

Central bank policy divergence puts pressure on bulls

The timing of hedge funds' shift in stance is quite delicate. Both the Federal Reserve and the Bank of Japan raised interest rates this week, but the Bank of Japan's forward guidance failed to meet some market participants' expectations for a further path of rate hikes, putting pressure on the yen.

The yen fell as much as 1.3% during Friday's trading session. According to Nikkei, the Bank of Japan had inquired about exchange rate levels with market participants, a move often interpreted as a warning sign of impending official intervention. The yen's losses narrowed after the announcement.

Bullish sentiment towards the US dollar cooled simultaneously.

Meanwhile, speculative traders, including asset managers and non-commercial dealers, had reduced their net long dollar positions to their lowest level since March as of September 15. However, the dollar subsequently rebounded strongly this week, posting its biggest weekly gain in three months, putting pressure on traders who had previously reduced their dollar holdings.

CFTC data provides investors with a window into the sentiment of the foreign exchange market, which has a daily trading volume of $9.5 trillion, reflecting the overall position direction established by hedge funds and asset management institutions through derivative instruments.

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