Despite the Bank of Japan raising interest rates last month as expected, the yen continues to face depreciation pressure because its policy stance fell short of market expectations for a hawkish shift and the interest rate gap between Japan and the United States remains significant.
According to the latest data from the U.S. Commodity Futures Trading Commission (CFTC), hedge funds have rebuilt short positions in the yen, reversing bullish bets accumulated over the previous two weeks. At the same time, speculative funds further increased long positions in the U.S. dollar and turned net short on the British pound for the first time since 2024, reflecting stronger bullish sentiment toward the dollar in the foreign exchange market.
CFTC data showed that in the week ended September 29, the notional value of net short yen positions held by leveraged funds was about 210 billion yen, equivalent to roughly $1.3 billion. Specifically, leveraged funds shifted from a net long position of 4,472 contracts in the previous week to a net short position of 16,809 contracts, a net swing of 21,281 contracts in just one week. That fully reversed the bullish positions built up over the prior two weeks.
The yen has now weakened against the dollar for a third straight week. Although Japanese government officials recently commented on the yen's persistent pressure and its potential effects, those remarks failed to effectively reverse the currency's weak trend. The Bank of Japan raised interest rates last month in line with market expectations, but its policy message failed to convince traders that more aggressive tightening measures will follow. Meanwhile, a sizable interest rate differential between Japan and the United States continues to weigh on the yen.
Notably, different types of investors have shown clear divergence in their views on the yen. While leveraged funds shifted back to shorting the yen, asset management institutions further increased their long yen positions. Data showed that in the week ended September 29, asset managers raised their net long yen positions by 9,463 contracts to 51,961 contracts, indicating that institutional investors have not yet formed a consensus view on the yen's next move.
At the same time, speculative sentiment toward the dollar continued to strengthen. CFTC data showed that in the week ended September 29, leveraged funds increased bullish dollar bets while expanding net short positions in major currencies such as the euro and the Canadian dollar. Net short positions in the euro rose by 23,640 contracts to 82,445 contracts. Net short positions in the Canadian dollar increased by 23,396 contracts to 72,519 contracts.
Position changes in the pound were also noteworthy. Data showed that leveraged funds shifted from a net long position of 6,519 contracts in the pound to a net short position of 5,377 contracts, the first net bearish pound positioning since 2024. Meanwhile, the pound fell to a three-month low against the dollar this week, reflecting ongoing pressure on sterling.
Among other major currencies, leveraged funds reduced net long positions in the Australian dollar by 570 contracts to 55,114 contracts. Net short positions in the New Zealand dollar fell by 3,762 contracts to 1,454 contracts. Net short positions in the Swiss franc declined by 1,603 contracts to 17,017 contracts. By contrast, the Mexican peso remained favored by some speculative funds, with net long positions rising by 1,417 contracts to 80,677 contracts.
Asset management institutions also showed clear differences in their positions across major currencies. In addition to increasing long yen holdings, asset managers raised net long positions in the euro by 487 contracts to 245,160 contracts. However, these institutions significantly increased bearish bets on the pound and the Australian dollar during the same period. Net short positions in the pound rose by 11,740 contracts to 125,424 contracts. Net short positions in the Australian dollar increased by 17,845 contracts to 73,073 contracts.
In addition, asset managers increased net short positions in the New Zealand dollar by 9,743 contracts to 21,228 contracts. Net short positions in the Canadian dollar rose by 3,116 contracts to 25,949 contracts. Net short positions in the Swiss franc increased by 888 contracts to 36,411 contracts. In the Mexican peso, asset managers sharply cut net long positions by 29,255 contracts to 16,251 contracts.
Overall, the latest CFTC positioning data indicate that the Bank of Japan's rate hike has not yet reversed the yen's weak trend, and the Japan-U.S. interest rate differential remains an important factor affecting the yen's performance. Against this backdrop, hedge funds have rebuilt short yen positions and further increased bullish dollar bets. However, asset management institutions continued to add to long yen positions, showing that different types of investors still disagree on the yen's outlook. Whether the yen can stabilize in the future will continue to depend on the Bank of Japan's subsequent policy stance, changes in the Japan-U.S. interest rate differential, and the overall direction of the dollar.