Hedge Funds Slash Bullish Yen Bets by Nearly 80% After BOJ Policy Disappoints

Hedge funds dramatically unwound their bullish bets on the Japanese yen after the Bank of Japan's latest interest rate hike failed to provide a clear signal for further policy tightening. Data from the U.S. Commodity Futures Trading Commission (CFTC) showed leveraged funds cut their net long yen positions by nearly 80% in the week ending September 22.

Dovish Hike Sparks Rapid Reversal

The positioning shift was particularly stark, as it came just one week after hedge funds had turned net bullish on the yen for the first time since mid-2025. According to the CFTC report released Friday, leveraged funds slashed their net long yen holdings to a value of ¥55.9 billion (approximately $355 million).

In contract terms, net long positions were reduced by 15,597 contracts, leaving a remainder of just 4,472. This rapid retreat suggests that the Bank of Japan's policy announcement on September 17, while including a rate increase as expected, lacked the hawkish forward guidance that traders were anticipating to sustain the yen's strength.

Dollar Bullishness Surges

In sharp contrast to the yen, speculative sentiment toward the U.S. dollar strengthened significantly. The CFTC data showed that net bullish positions on the dollar held by speculators, including asset managers and non-commercial traders, more than tripled during the same period. This move coincided with the dollar recording its strongest two-week performance in six months.

Ad

The enduringly wide interest rate differential between the U.S. and Japan remains a primary factor supporting the dollar and weighing on the yen. While the yen saw a notable rebound on Friday, gaining as much as 1.2% to 156.94 per dollar after Japanese and U.S. officials discussed its weakness, the underlying speculative trend has shifted decisively against it.

Broad Caution on Non-Dollar Currencies

The data indicates a broader risk-off sentiment among institutional investors, with increased caution toward several major currencies versus the dollar. For the week ending September 22, leveraged funds also took the following actions:

• Increased net shorts on the euro, New Zealand dollar, Canadian dollar, and Swiss franc.
• Reduced net longs on the British pound, Australian dollar, and Mexican peso.

Asset managers displayed a similar trend, reducing their net long positions in the yen and euro while increasing short positions against the pound and Australian dollar. This widespread move underscores the dollar's renewed appeal amid global monetary policy divergence.