Hedge funds increase rates on the yen fall

Hedge funds expect the yen to fall significantly under conditions of rising interest rates by developed market participants. They raised the rate on the fall of the Japanese currency to a three-month maximum.

The Commodity Futures Trading Commission presented its data. They show the largest increase since last March. Last week, leveraged funds added 18,836 net short positions. They were opened during a turbulent week for the markets. One of the turbulence reasons is partly the higher than expected consumer prices in the United States. This situation increased expectations of the FRS aggressive rate hike. At the same time, the Bank of Japan is expected to keep the rate on the same level.

This year, the yen gave the worst result among the G 10 currencies. The Japanese currency fell 20% against the dollar and enlarged the gap in profitability between rates in the U.S. and Japan. This was a reason for investors to take the once reliable yen off their hands.

The FRS is considering an interest rate increase of 1% at a time at its policy meeting. On the other hand, the Bank of Japan is considering keeping the rate at the minimum level of -0.1%. If there is an FRS rate increase, the spread will be enlarged even more this week.

The yen will be in danger of further decreasing due to Japan's controversial stance.

Ray Attrill, a strategist at National Australia Bank Ltd. in Sydney, opined that the continuing expansion of the yield differential between the U.S. and Japan easily excuses the speculative selling of the yen. He also added that it is necessary to stop or reverse this spread widening, otherwise the yen will remain under additional pressure from sellers.

Earlier this month, the yen closely approached the carefully controlled level of 145 per dollar. This affected the Bank of Japan's decision to ask for an indicative price at which it could buy the yen to help stop the currency's falling.