Bank of Japan rate hike still fails to impress the market! Hedge funds slash yen longs by nearly 80%, dollar longs surge

Title context: Bank of Japan rate hike still fails to impress the market! Hedge funds slash yen longs by nearly 80%, dollar longs surge Text: After the Bank of Japan failed to send sufficiently clear signals to the market about further rate hikes, hedge funds sharply cut their bullish yen bets. Data released by the U.S. Commodity Futures Trading Commission (CFTC) on Friday showed that in the week ended September 22, leveraged funds held net long yen positions worth about 55.9 billion yen (about $355 million), down nearly 80% from the previous week. This shift in positioning is particularly notable because just the previous week, hedge funds had turned net bullish on the yen for the first time since mid-2025. Only a week later, traders quickly withdrew most of their bullish bets, showing that the Bank of Japan's latest policy signal failed to meet market expectations for further monetary tightening. The Bank of Japan raised rates on September 17 as the market expected, but its policy statement did not show the degree of hawkishness traders had anticipated, nor did it make a clear commitment to further rate hikes in the future. As a result, the yen weakened afterward. CFTC data showed that in the week ended September 22, leveraged funds cut their net long yen positions by 15,597 contracts, leaving only 4,472. In value terms, their bullish yen positions plunged nearly 80% from the previous week to 55.9 billion yen. The still-large interest rate gap between Japan and the United States is also an important factor weighing on the yen. At the same time, Japanese markets were closed for a public holiday earlier this week, which to some extent reduced trading activity in the local market. However, the yen rebounded noticeably on Friday, rising as much as 1.2% to 156.94 per dollar. Earlier, Japanese officials and U.S. officials discussed the problems caused by a weak yen during a meeting, and the related remarks renewed market attention on exchange rate policy. In sharp contrast to the rapid retreat from yen longs, speculative funds' bullish sentiment toward the dollar strengthened markedly. In the week ended September 22, speculative funds, including asset managers and non-commercial traders, more than tripled their net bullish dollar positions from the previous period. At the same time, the dollar had just recorded its strongest two-week rally in six months. The dollar's strength is closely related to recent changes in expectations for Federal Reserve policy. Compared with the Bank of Japan's cautious stance on further rate hikes, the large interest rate differential between the United States and Japan continues to support the dollar and has also weakened the appeal of previously betting on yen appreciation. CFTC data also showed that leveraged funds not only cut yen longs, but also generally adopted a more cautious attitude toward a range of major non-U.S. currencies. In the week ended September 22, leveraged funds increased euro net shorts by 7,450 to 58,805 contracts; reduced sterling net longs by 12,179 to 6,519; and reduced Australian dollar net longs by 3,615 to 55,684. At the same time, New Zealand dollar net shorts increased by 2,897 to 5,216, Canadian dollar net shorts increased by 7,719 to 49,123, and Swiss franc net shorts increased by 1,956 to 18,620. Mexican peso net longs fell by 10,865 to 79,260. Asset managers showed a similar trend. Their yen net longs fell by 12,323 to 42,498, and euro net longs fell by 30,892 to 244,673; sterling net shorts increased by 24,725 to 113,684, and Australian dollar net shorts increased by 8,840 to 55,228. Among these, the change in New Zealand dollar positioning was particularly notable, with asset managers shifting from a net long position of 10,170 to a net short position of 11,485. In addition, Canadian dollar net shorts increased by 13,987 to 22,833, while Mexican peso net longs fell by 7,840 to 45,506.