19 Jan 2015
BoJ to monitor hedge fund's Yen influence closely
FXStreet (Bali) - The Bank of Japan is keeping an eye on hedge fund activity in the yen, reports Hiroyuki Kachi from the Wall Street Journal, after the BoJ released a report last Wednesday noting that these funds were growing in influence.
From the WSJ
The central bank suggested the presence of hedge funds in the global currency market can reach more than 10% of daily transaction value, citing data from the Bank for International Settlements.
BoJ said activity by hedge funds accelerated slides in the yen between the autumn of 2012 and the first half of 2013, as well as from the summer of 2014.
The first period corresponds with a movement in the dollar-yen exchange rate from around ¥79 to around ¥103, as markets anticipated and reacted to the election of Prime Minister Shinzo Abe and the BOJ’s aggressive monetary easing.
The second period corresponds with a move from ¥102 in August 2014 to almost ¥122 in early December about five weeks after the BOJ’s additional stimulus action.
Of the ¥24 movement against the dollar in the first case, only about ¥6 can be explained in terms of economic fundamentals such as the trade balance and interest rate differentials, said Yunosuke Ikeda, Nomura Securities chief FX strategist. The rest of the movement was largely based on speculative trading, some of which came from hedge funds.
“Because the yen’s weakness has been driven mainly by speculative activity, we may see at some point a strengthening of the yen with no particular reason,” because of funds unwinding their positions, Mr. Ikeda said. A strengthening beyond ¥115.50 would not be a surprise, he added.
From the WSJ
The central bank suggested the presence of hedge funds in the global currency market can reach more than 10% of daily transaction value, citing data from the Bank for International Settlements.
BoJ said activity by hedge funds accelerated slides in the yen between the autumn of 2012 and the first half of 2013, as well as from the summer of 2014.
The first period corresponds with a movement in the dollar-yen exchange rate from around ¥79 to around ¥103, as markets anticipated and reacted to the election of Prime Minister Shinzo Abe and the BOJ’s aggressive monetary easing.
The second period corresponds with a move from ¥102 in August 2014 to almost ¥122 in early December about five weeks after the BOJ’s additional stimulus action.
Of the ¥24 movement against the dollar in the first case, only about ¥6 can be explained in terms of economic fundamentals such as the trade balance and interest rate differentials, said Yunosuke Ikeda, Nomura Securities chief FX strategist. The rest of the movement was largely based on speculative trading, some of which came from hedge funds.
“Because the yen’s weakness has been driven mainly by speculative activity, we may see at some point a strengthening of the yen with no particular reason,” because of funds unwinding their positions, Mr. Ikeda said. A strengthening beyond ¥115.50 would not be a surprise, he added.