Hedge Funds Are Betting Yen May Slide to 165 Before Intervention

Hedge funds are ignoring yen intervention warnings and wagering in the currency option markets that it may fall toward 165 to a dollar before Japanese authorities step in.

Japan’s finance minister and top currency official on Wednesday after the yen fell to its weakest level against the dollar in 18 months. Prime Minister Sanae Takaichi ’s plan to a snap election has added to expectations of further gains in dollar-yen, as investors see a renewed mandate for expansionary policies if the Liberal Democratic Party secures a majority. The pair closed Wednesday down 0.4% at 158.46.

“Hedge fund demand for higher USD/JPY structures continues and we’re seeing a steady mix of outright option buying as well as leveraged structures expecting potential central bank intervention in the 160-165 region,” said Sagar Sambrani , a senior foreign-exchange options trader at Nomura International Plc in London. He was referring to leveraged structures like reverse knock-out options which are contracts that expire worthless if a specific price barrier is breached and are more cost-effective than standard call options.

Trading volume in options with a notional value of $100 million or greater on Wednesday was more than double for calls that gain in value if the pair rises, than for puts that profit when the pair falls, according to data from Depository Trust and Clearing Corp. The imbalance underscores a bullish bias toward the dollar-yen pair, despite its climb to levels last seen in July 2024, when Japan’s Ministry of Finance the market to support the Japanese currency.

The pair’s rapid rise and the threat of intervention have prompted some investors to buy put options, however, for hedging and speculative trades. Japan’s last intervention was spread over two days as dollar-yen dropped as much as 2.6% on the first day from a peak of 161.76.

“Some investors are seeking downside protection in the short term amid concerns about potential intervention,” said Mukund Daga , global head of FX options at Barclays Bank Plc.