Dollar against yen short position plummets, beware of short counterattack

Daocheng Technology Financial News -USD/JPYLast week, it rose by about 1.9%, and the dollar fell by 3.4% against the yen in the previous week, marking its largest weekly percentage decline since early December 2022.Bank of JapanSuspected twiceIntervention in the foreign exchange market。

Japanese Finance Minister Shunichi Suzuki said on Friday that the government would take appropriate action on foreign exchange if necessary, echoing recent comments by other officials.

Since March 2020, hedge funds have sharply reduced their bets on the yen following the possible intervention of Japanese authorities to prop up the yen.

Data released by the US Commodity Futures Trading Commission on Friday showed that these leveraged investors held more than 81,000 contracts related to bets that the yen would fall in the week to Tuesday, down nearly 27,000 from the previous week. This is the largest decline since the epidemic more than four years ago.

The yen appreciated sharply last week, and the movement of about 9.40 trillion yen (60.30 billion dollars) in central bank accounts suggested that Japan may have intervened twice to boost the yen, reducing short bets.

The yen has fallen more than 1.7 per cent against the dollar in the past five days.

Brad Bechtel, global head of FX at Jefferies Financial Group, said: "The intervention drove out short-term traders, but the broader market stuck with the yen shorts and got a decent rally."

Looking ahead to the week ahead, analysts point out that Japan will release its first estimate of Quarter 1 gross domestic product in early Asian trading on Thursday (May 16), and it will be interesting to see if the economy maintains growth or slips back into contraction. If it is the latter, the yen is likely to continue falling and approach the Y160-to-dollar range that triggered the first round of intervention last week.

Still, even if the Japanese authorities intervene again around that range, a reversal is unlikely, as another quarter of economic contraction could trigger speculation that the Bank of Japan's next rate rise will be further delayed. For the yen to have a decent recovery, GDP data may need to show an acceleration in economic growth, encouraging market participants to up their bets on a summer rate rise.

(Daily chart of USD/JPY)

Beijing time 05:53, the dollar against the yen is now 155.66/72.