Bloomberg

Tuesday, 7 July 2026 14:32 | 2-minute read

Hedge funds have adopted the largest negative stance on the Japanese yen since 2007, as the currency trades near its weakest levels in four decades, boosting the appeal of so-called carry trades.

Data from the Commodity Futures Trading Commission (CFTC) released on Monday showed that leveraged traders in options and futures markets increased their bets on a continued decline of the yen to about 138,000 contracts as of June 30.

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This rise in bearish positions on the yen comes as the Japanese currency weakened to its lowest level since 1986, fueling speculation about possible intervention by Japanese authorities to support the currency. The yen traded at 161.78 per dollar as of 11 a.m. Tokyo time on Tuesday.

The main reason for the yen's weakness lies in the large interest rate gap between the US and Japan. As long as investors can borrow cheaply in yen and earn much higher returns in dollars, carry trades will remain attractive, said Kristy Tan, global head of investment strategy at Franklin Templeton.

She added: 'Although unilateral intervention in the foreign exchange market could cause a sharp move in the currency for a few hours or days, it is much harder to achieve sustainable yen strength if the macroeconomic factors supporting these trades remain in place.'

Yen Among Worst Performers Against the Greenback

The yen has fallen 3.2% against the dollar since the start of the year, remaining among the worst-performing major currencies.

Despite the Bank of Japan raising interest rates in June, in line with expectations—a move that was supposed to support the yen—the larger impact came later after Federal Reserve Chair Kevin Warsh pledged to restore price stability in the US.

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The yen also faces pressure from the massive spending plans of Prime Minister Sanay Takaichi, as well as her support for accommodative monetary policy.

In a draft of its annual economic and fiscal policy plan, due to be approved in mid-July, the government stated that appropriate monetary policy management is 'extremely important for achieving a strong economy,' using more hawkish language than last year.

Intervention Readiness in Currency Market

Japanese Finance Minister Satsuki Katayama reiterated last week that she, in coordination with her colleagues, can take appropriate action in the foreign exchange market at any time.

Japanese authorities spent a record ¥11.73 trillion ($72.7 billion) from April 28 to May 27 to defend the yen.

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