Asset managers become more optimistic about the yen as the courses of the Fed and the BoJ could shift

26 Dec 2023 , 08:17 AM

 For the first time since May, asset managers changed their sentiment towards the yen from pessimistic to positive due to the rising belief that the Bank of Japan will likely stop its ultra-easy policy in 2024 while its major competitors decrease interest rates. 

Hedge funds’ slightly less pessimistic bets on the yen were also evident in the most recent statistics from the Commodities Futures Trading Commission, which covered the week ending on December 19.

As the Federal Reserve signalled a shift to rate cuts next year and there were lingering rumours that Japan was about to discontinue the world’s last negative interest rate policy, the yen this month rose to its highest level against the dollar since the end of July.

As the pressure on inflation has decreased, interest rates are also anticipated to drop by the Bank of England and the European Central Bank in 2019.

Dollar-yen risk reversals also imply that traders are hedging for a strengthening of the Japanese yen. These contracts demonstrate demand for call options to buy the yen relative to put options to sell it. Contracts for one month cover the January 22–23 meeting of the Bank of Japan’s monetary policy.

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