Hedge funds slash yen shorts as currency volatility hits four-year low

Hedge funds have significantly reduced their bearish positions against the Japanese yen, with net short exposure falling to one-eighth of its June peak. This reduction in short exposure coincided with a narrowing of the dollar-yen trading range to just ¥2.87, reflecting growing caution among speculative investors. The retreat in yen shorts is attributed to coordinated US-Japan currency intervention in July and repeated warnings from policymakers against excessive yen weakness, as well as growing demand for the yen amid rising global risk aversion.

While the reduction in hedge fund short positioning suggests that speculative selling pressure has eased considerably, analysts caution that the prolonged period of low volatility could leave currency markets vulnerable to abrupt moves as new positions accumulate.

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