© Reuters. FILE PHOTO: Examples of Japanese yen banknotes are displayed at a factory of the National Printing Bureau producing Bank of Japan notes at a media event about a new series of banknotes scheduled to be introduced in 2024, in Tokyo, Japan, November 21, 2022
By Jamie McGeever
ORLANDO, Florida (Reuters) -Hedge funds have cut back their huge bet against the yen ahead of the Bank of Japan’s policy decision on Tuesday, but not by much, suggesting they don’t believe a landmark interest rate hike would do much to improve the currency’s immediate fortunes.
The BOJ is expected to deliver its first rate hike in 17 years on Tuesday, bringing the curtain down on eight years of negative interest rate policy (NIRP), and the latest move to end decades of deflation-fighting, accommodative policy.
As historic as that would be, however, it probably won’t move the dial much for currency traders unless it is followed up with further action, and unless the yen’s yield gap with other currencies like the dollar shrinks significantly.
More clarity on that will no doubt come from BOJ Governor Kazuo Ueda on Tuesday, and the U.S. Federal Reserve in its policy statement and Fed Chair Jerome Powell in his press conference on Wednesday.
But until then, the jury is out and speculators are reluctant to buy into the view that Japan’s first baby step into the world of policy normalization is a game-changer for the yen.
The latest Commodity Futures Trading Commission data show that funds cut their net short yen position by 16,521 contracts to 102,322 contracts in the week ending March