Hedge funds seem to have abandoned some of their bullish bets on the yen, but are still paying high prices to hedge positions at current levels, indicating increased uncertainty about the yen's next move. Ruchir Sharma, head of global foreign exchange options trading at Nomura International, said Vice President of the Bank of Japan, Shinichi Uchida's dovish remarks on Wednesday reduced the relative cost of hedging yen appreciation for the next month by about one-third, but it should be noted that despite the yen's recent softening, hedging pricing in the forward market is still high.

The rapid appreciation of the yen in the recent period has caused some turmoil in the Japanese financial market. Shinichi Uchida said on Wednesday that if the financial markets were not stable, policy makers would not raise the benchmark interest rate. This is a strong signal to the market. Ruchir Sharma said, "The premium for buying yen call options for one month and selling yen put options has fallen sharply. Quick money has been actively involved in the past 48 hours, but enterprises and real money have been waiting for the market to stabilize before participating."

The yen's volatility has been high this week, initially skyrocketing due to hedge funds continuing to withdraw from short positions in the yen after the Bank of Japan unexpectedly raised interest rates last week, but quickly falling after Shinichi Uchida's dovish comments. On Monday, the USD/JPY exchange rate was below 1 USD to 142 JPY, but by Wednesday, the rate had risen to nearly 1 USD to 148 JPY. In addition, indicators measuring the future trend of USD/JPY for the next month are still close to the highest level since January 2023.

Editor/ping