Hedge funds swing back to a ¥210 billion yen short, but it is one-eighth of June's bet, CFTC data show

Hedge funds are betting against the Japanese yen again. Leveraged funds held a net short position of 16,809 yen futures and options contracts in the week ended Sept. 29, according to the Commodity Futures Trading Commission's Traders in Financial Futures report released on Friday. A week earlier they were net long 4,472 contracts.

Each contract covers ¥12.5 million, so the new short is worth about ¥210 billion, or roughly $1.3 billion at Friday afternoon's rate of about 157.9 yen per dollar on our market board. Bloomberg reported the same figure and noted that the yen has weakened for three straight weeks.

The number behind the number

"Rebuilding" is the right word, but the scale matters. We pulled the CFTC's weekly history for the contract, and today's short is small next to where it was this summer.

The June 30 short of 137,828 contracts was worth about ¥1.72 trillion. The current one is about 12% of that. What is striking is the speed: in the first two weeks of September, leveraged funds swung from 111,297 contracts short to 20,069 long, a turn of more than 130,000 contracts, and they have now given back about 37,000 contracts of that in two weeks.

The other side of the trade

Hedge funds are not the whole market. Asset managers, the pension and mutual fund category, moved the opposite way in the same week, adding 9,463 contracts to a net long yen position that now stands at 51,961 contracts, a little below the 54,821 it reached on Sept. 15. Dealers, who sit in the middle, cut their net short by about 21,500 contracts. In plain terms, fast money turned against the yen while slower institutional money leaned further toward it.

Two things are worth knowing about the data. The report is a snapshot taken on Tuesday and published Friday, so it does not capture trading since Sept. 29, including Friday's soft U.S. jobs report. And positions in futures are only part of the yen market; they show direction and change better than total size.

Why it is moving

The driver is the gap in interest rates. With the Fed debating further hikes and Treasury yields above 5%, holding dollars pays far more than holding yen, which rewards anyone short the yen. Against that sits the risk of official action: Tokyo and Washington talked up the yen on Sept. 25, and the two governments intervened together this summer after it weakened past 160 per dollar. That is the line traders are watching.

For a U.S. business paying a Japanese supplier in yen, the direction of the trade is a cost question. At 157.9 yen, a ¥10 million invoice costs about $63,330. At 160 it would cost $62,500, and at 150, about $66,670. A short yen position gains if the rate drifts toward 160 and loses if it heads toward 150.

Sources: CFTC Traders in Financial Futures, futures and options combined, and the CFTC public reporting history for CME Japanese yen; Bloomberg. Yen and dollar conversions are Chronicle calculations. This is market information, not investment advice.