Leveraged funds’ yen net short position shrinks on carry trade unwind

NEW YORK – Leveraged funds’ position on the Japanese yen shrank to the smallest net short stance since February 2023 in the latest week, US Commodity Futures Trading Commission and LSEG data released on Friday showed.

The net position for leveraged funds – typically hedge funds and various types of money managers, including commodity trading advisors (CTAs) – was short by 24,158 contracts, compared with a net short position of about 70,000 contracts in the previous week, data as of Aug. 6 showed.

That’s the largest change in weekly net positioning in the yen by leveraged funds since March 2011, LSEG data showed.

“This week marked the culmination of the largest yen short squeeze in 17 years, with leveraged funds and other speculators unwinding bets against the currency at the fastest monthly pace since August 2007,” said Karl Schamotta, chief market strategist at payments company Corpay.

“To paraphrase Mike Tyson, everyone has a plan until the yen punches them in the mouth,” he said, referring to the American boxer.

Global stock and bond markets, in particular Japan’s, were rocked this week by an unwinding of the hugely popular yen carry trade.

That trade, which involves borrowing yen at a low cost to invest in other currencies and assets offering higher yields, is being wrecked by Japan’s rate increases, a volatile yen, and imminent rate cuts in the United States and other economies.

The US dollar has fallen 9% against the yen over the past month.

(Reporting by Saqib Iqbal Ahmed; Editing by Rod Nickel)