Hedge funds have decreased their positive wagers on the Japanese yen, a notable reversal just a week after they had turned bullish on the currency for the first time since July 2025. This shift in sentiment followed the Bank of Japan's (BOJ) decision to raise interest rates to 1.25% on September 18, which, while the highest since 1995, disappointed some traders who had anticipated clearer signals of continued aggressive rate hikes. The yen subsequently fell by as much as 1.3% against the dollar on Friday, paring some declines to trade around 156.80 per dollar in New York.
According to Commodity Futures Trading Commission (CFTC) data, leveraged traders had previously eliminated their short positions against the yen in the week ending September 15 and began building bets on a stronger currency. At that time, these funds held approximately ¥251 billion ($1.6 billion) in positions tied to a strengthening yen. This pivot had occurred before both the Federal Reserve and the Bank of Japan lifted interest rates this week. However, the BOJ's cautious stance on future rate increases, with Governor Kazuo Ueda stating that financial conditions would remain accommodative and two board members dissenting on the recent hike, left traders feeling "wrongfooted."
The yen's struggles persist despite intervention efforts and the BOJ's rate hike, as the rate differential between Japan and the US remains significant. The Fed raised its rates to 3.75%-4.00% two days before the BOJ's move, maintaining a substantial gap. Finance Minister Katayama reiterated on Thursday that the principles behind the joint US-Japan intervention of July 31 are still active, and Japanese authorities reportedly checked rates with dealers on September 18, a step often preceding official intervention. Despite these actions, the USD/JPY pair touched 159.00, its highest since early September, on Thursday and continued to trade just under that level on Friday.
The weakening yen has also drawn international attention, with US President Donald Trump reportedly expressing concern over the undervalued yen during a summit with Japanese Prime Minister Sanae Takaichi on September 22. This suggests that the yen's depreciation is becoming a topic of discussion on the global stage. Meanwhile, speculative traders have also reduced their positive stance on the dollar as of September 15, to its lowest level since March, even as the US currency saw its biggest surge in three months this week.
