Hedge funds turn bullish on the yen for the first time in over a year, with net long positions rising to about $1.6 billion; forex volatility intensifies after Japan and U.S. rate hikes.

The latest data from the U.S. Commodity Futures Trading Commission (CFTC) shows that hedge funds have turned bullish on the yen for the first time since July 2025. Just weeks earlier, U.S. and Japanese authorities had intervened in the market to support the yen, and as expectations for the subsequent policy path shifted, leveraged funds began betting on further yen strength. In the week ended Sept. 15, leveraged funds completely unwound their previous net short yen positions and began building long yen positions. According to a media compilation of CFTC data, these funds currently hold about 251 billion yen (about $1.6 billion) in positions related to yen appreciation. In terms of contract counts, leveraged funds' yen positioning shifted sharply from a net short of 53,255 contracts to a net long of 20,069 contracts, indicating a clear reversal in speculative funds' attitude toward the yen. This is also the first time since July 2025 that hedge funds have collectively turned bullish on the yen. This positioning change is noteworthy because CFTC data reflects how investors use derivatives to position themselves in the global foreign exchange market, which has an average daily trading volume of about $9.5 trillion, and can provide an important reference for observing hedge funds' and asset management institutions' exchange rate expectations. The shift by hedge funds toward bullish yen positioning comes as both the Federal Reserve and the Bank of Japan took rate-hike actions this week. The Federal Reserve this week raised the target range for the federal funds rate by 25 basis points to 3.75%-4.00%. The Fed said U.S. economic activity is still expanding at a solid pace and inflation remains elevated, and that this policy adjustment is intended to help bring inflation back to its 2% target in a more timely manner. The Bank of Japan also announced an adjustment to its money market operation guidelines on Sept. 18. According to the BOJ's website, after the policy adjustment, it will guide the uncollateralized overnight call rate to remain at around 1.25%. However, the BOJ's policy signal did not fully meet the expectations of some market participants. Some investors had hoped the BOJ would more clearly hint that it would continue raising rates in the future, which put short-term pressure on funds that had previously bet early on yen appreciation. On Friday, the yen at one point fell 1.3% against the dollar, then narrowed its decline, trading near 156.80 yen per dollar late in New York. In other words, although hedge funds had already shifted substantially toward long yen positions in advance, the BOJ's subsequent rate-hike signal fell short of some investors' expectations, putting this bet temporarily to the test. At the same time, the yen's continued pressure has once again drawn market attention to the possibility of intervention by Japanese authorities. According to reports, the Bank of Japan has asked market participants about current exchange rate levels in the foreign exchange market. Such rate-checking behavior is usually seen by the market as a potential step before Japanese authorities take formal foreign exchange intervention. This development is particularly closely watched because, just weeks earlier, U.S. and Japanese authorities had already acted to support the yen. Against this backdrop, if the yen rapidly depreciates again, traders will inevitably pay closer attention to whether Japanese officials will enter the market once more. Not only leveraged funds, but large asset management institutions also clearly increased their bets on yen appreciation. In the week ended Sept. 15, asset management institutions increased their net long yen positions by 54,179 contracts, bringing the overall net long position to 54,821 contracts. This means that different types of institutional funds have recently been raising their bullish exposure to the yen. By contrast, positioning changes in other major currencies were more mixed. Leveraged funds increased their net short euro positions by 4,974 to 51,355 contracts; reduced their net long pound positions by 21,663 to 18,698 contracts; and increased their net long Australian dollar positions by 10,920 to 59,299 contracts. At the same time, net short Canadian dollar positions fell by 15,448 to 41,404 contracts, while net long Mexican peso positions rose by 7,946 to 90,125 contracts. On the asset management side, net long euro positions edged down by 906 to 275,565 contracts, net short pound positions fell by 17,119 to 88,959 contracts, and net short Canadian dollar positions fell sharply by 21,287 to 8,846 contracts. It is worth noting that, while long yen positions increased rapidly, speculative funds had also previously reduced their bullishness on the dollar. As of Sept. 15, the overall bullish positioning on the dollar by speculative funds, including asset management institutions and non-commercial traders, had fallen to its lowest level since March this year. But the dollar's subsequent move stood in sharp contrast to the positioning changes, with the dollar strengthening sharply this week and posting its largest weekly gain in about three months. This means that some traders who had previously reduced long dollar positions while turning bullish on the yen may, in the short term, face a situation in which market moves run opposite to their positioning direction. From a broader perspective, this CFTC data reflects a clear change in the foreign exchange market: after the yen had long been suppressed by the U.S.-Japan interest rate differential, institutional investors are beginning to place greater weight on the potential support from Japan's monetary policy normalization and official foreign exchange intervention.