Japan’s Retail Investors Boost Bullish Yen Wagers to Near Record

Japanese retail investors are betting on a further rally in the yen even as it retraces some of the gains made in the past two weeks.

Net yen long positions held by individual traders against 14 foreign currencies via futures stood at ¥431 billion ($2.9 billion) as of Monday, up 22% since the Bank of Japan’s rate hike late last month, according to Tokyo Financial Exchange Inc. data compiled by Bloomberg. That puts them close to the record ¥501 billion reached in April.

These bullish positions signal a strong conviction among retail traders that the rally in Japan’s currency has more legs, given these bets stand to incur losses resulting from the still-wide yield differentials between Japan and other economies. Yen bulls have also been energized by prospects for Federal Reserve policy easing and heightened market volatility that scared off carry traders.

Japan’s currency traded little changed at 146.88 against the dollar as of 7:15 a.m. in Tokyo. It’s fallen about 4% since touching a seven-month high of 141.70 last week.

The bulk of yen long positions were against the dollar, followed by the pound and the Swiss franc. Japanese retail accounts still held yen shorts against high-yielding currencies such as the Mexican peso and Turkish lira, although these have been greatly pared back in the past two weeks.

Yen positions held on Tokyo Financial Exchange are part of a larger pool of money that retail investors plow into currency markets. Foreign-exchange trading by individuals accounted for almost a quarter of entire currency transactions in Tokyo last year, according to a report from the Financial Futures Association of Japan.

** Bloomberg L.P.