Hedge funds saw a significant reduction in bearish yen wagers last week, according to CFTC data. In uncertain times, haven status is the primary determinant of the yen: CBA.
The spread of omicron led to increased demand for haven assets, and hedge funds cut their bearish yen bets to the lowest level in 20 months last week.
The Commodity Futures Trading Commission reports, leveraged funds cut net-short yen derivatives positions by 40% the week ended Nov. 30. On Nov. 24, the yen hit a five-year low against the dollar. Since then, it has rallied nearly 2% against the dollar.
One of the concerns is that the new strain will derail the global recovery. Investors worldwide have shifted from risk assets into safe havens like the yen and Treasurys. The Risk Aversion Index of Westpac Banking Corp. climbed to its highest level since February 2020 last month.
In a note, Commonwealth Bank of Australia strategists including Kim Mundy wrote that yen risks are on the upside. When uncertainty is high, safe-haven status is a decisive factor driving the yen.
Speculators are piling up yen shorts again despite the reduction in bearish bets. According to JPMorgan Chase & Co., Positions shows “the potential to rebuild yen shorts should market stresses ease and the focus return to policy divergence,” strategist Patrick Locke wrote.