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Foreign Exchange

Speculators push JPY short positions towards record highs

Speculative accounts on the Chicago Mercantile Exchange pushed their net short positions in the JPY towards record levels in the week to March 27.

According to data from the CFTC’s latest Commitment of Traders report, investors sold a net 41,800 of JPY contracts, taking the value of bets against the currency to $10.2 billion. That took the value of bets against the JPY through the peak of mid 2011 and to their highest level for four and a half years, when the JPY-funded carry trade was in full swing ahead of the financial crisis.

The all-time record net short position in the JPY occurred in June 2007, at $19 billion.

 Net speculative IMM positioning in JPY

 
 Source: Caxo Bank, CFTC, Bloomberg

The move, which was triggered equally by investors abandoning their long positions in JPY as others added to shorts, comes amid speculation that loose monetary policy in Japan, combined with deteriorating economic data, is triggering a fresh yen-funded carry trade.

“Recent dovish action from the Bank of Japan and the worse-than-expected Tankan survey, which showed that sentiment at the largest companies is not improving, could lead to more easing, thereby supporting the trade even further,” says Ole Hansen, strategist at Saxo Bank.

Meanwhile, net short positions in the EUR rose for the first week in three ahead of the EU finance ministers’ summit, with the fall in long positions somewhat offset by short covering.

“Investors are likely responding to the narrowed trading range for EUR and are reducing their overall exposure in the absence of significant movement,” says Camilla Sutton, chief currency strategist at Scotia Capital.

Investors remain overwhelmingly bearish against the euro, however, with shorts outnumbering longs by more than 3.5 to 1. The value of net short position in the EUR, $14.8 billion, remains the largest of any of the eight currencies tracked in the report.


 IMM net long (short) non-commerical positions

 
 Source: CFTC, Scotia FX strategy

AUD remains the market darling, with the value of net long positions held in the currency the largest at $6.2 billion. The figures, though, represent a reduction in short positions in the currency, as it corrected lower after weaker-than-expected Chinese economic data, with investors unwilling to add to long positions in the currency.

“This suggests that investors were decreasing, not increasing exposure to AUD,” says Sutton.

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