(Bloomberg) — Asset managers turned bullish on the yen from bearish for the first time since May on the growing view that the Bank of Japan will probably end its ultra-easy policy in 2024 while its major peers cut interest rates.
The latest Commodity Futures Trading Commission data for the week through Dec. 19 also showed a slight reduction in still-bearish bets toward the yen by hedge funds.
The yen this month reached its strongest level since the end of July against the dollar as the Federal Reserve signaled a pivot to rate cuts next year while speculation lingers its Japanese counterpart is prepared to end the world’s last negative interest rate policy. The European Central Bank and Bank of England are also expected to lower interest rates next year as inflationary pressure has subsided.
“Asset managers are likely to keep their long positions on the yen as speculation continues that a move is possible at the BOJ’s January monetary policy meeting, even after there was no policy change in December,” said Hirofumi Suzuki, chief FX strategist at Sumitomo Mitsui Banking Corp. “The position reversal reflects growing expectations of a US rate cut and the BOJ ending negative rates during the data period.”
Dollar-yen risk reversals, which are contracts that show demand for call options to buy the yen relative to put options to sell it, also suggest that traders are hedging for the Japanese currency to strengthen. One-month contracts cover the next BOJ monetary policy meeting on Jan. 22-23.