Yen Bears Getting Burned in November Amid Rate-Market Turmoil

(Bloomberg) -- Traders betting the yen would extend its slump are feeling a little burned this month as global rates whipsaw and the Japanese currency rebounds.

Shorting the yen has become a popular trade in foreign-exchange markets amid bets the Bank of Japan will lag its peers -- particularly the Federal Reserve -- in tightening policy. Leveraged-fund positioning in the yen is the most bearish since January 2019, according to data from the Commodity Futures Trading Commission, and the Japanese currency has declined about 8.5% so far in 2021.

The trade has been under pressure this month, with the yen advancing about 1% in November -- the most among its Group-of-10 peers. The newfound strength in the Japanese currency tracks a rally in longer-maturity Treasuries since the end of October. It rose 0.3% on Tuesday.

The yen is “challenging speculative positioning and rallying as global long safe-haven yields have dropped sharply,” wrote John Hardy, head of currency strategy at Saxo Bank. Nevertheless, a “proper reversal” of the yen’s decline from its September level would require the dollar-yen pair to move through 112 and possibly even 111.25, he wrote.

Yields at the long end of the curve have plunged, with rates on 30-year notes touching their lowest levels since July and 10-years at their lowest in over a month. 

©2021 Bloomberg L.P.