Hedge funds sharply increased yen short positions ahead of the Japanese general election, posting the biggest weekly rise in nearly a decade.

Hedge funds significantly increased short positions in the yen ahead of Japan’s snap election, with the scale of holdings hitting a ten-year high, reflecting mounting bets by investors on the election outcome and its impact on fiscal policy. Commodity Futures Trading Commission data shows that in the week ending January 13, leveraged funds increased their net short yen positions by 35,624 contracts, marking the largest weekly increase since May 2015. This shift is particularly notable as hedge funds had either reduced or maintained yen short positions for four consecutive weeks prior. Last week, the yen fell to its weakest level since July 2024, mainly due to the outlook for Japan’s snap election. On the 19th, Japanese Prime Minister Sanae Takaichi officially announced the dissolution of the House of Representatives on January 23, seeking voter authorization to continue governing, with the election for the House of Representatives to be held on February 8. The current term for members of Japan's House of Representatives was originally set to expire in October 2028. Traders are betting that Prime Minister Sanae Takaichi may win the election, and she advocates for more aggressive fiscal stimulus, which could further widen Japan’s fiscal deficit. Expectations of looser fiscal policy have weakened the appeal of the yen, prompting hedge funds to increase short positions. Hiroyuki Machida, Head of FX and Commodities Sales at ANZ in Tokyo, said, “This data is sufficient for the authorities to justify that the recent rise in USD/JPY is driven by speculation. This means the conditions for strong intervention are increasingly in place.” The depreciation of the yen has raised market concerns about possible intervention by Japanese authorities. The yen exchange rate is close to the key level of 160 yen to the dollar, the same area where the authorities last intervened in the forex market. Hiroyuki Machida noted that the latest positioning data provides sufficient evidence for the authorities to prove that the recent decline in the yen is primarily driven by speculative behavior rather than fundamentals, giving policymakers more reason to take strong intervention measures. Risk Warning and Disclaimer Markets have risks, and investments should be made with caution. This article does not constitute personal investment advice and has not taken into account any particular user's special investment objectives, financial situation or needs. Users should consider whether any opinions, views or conclusions in this article fit their specific circumstances. Investing accordingly is at your own risk.