Soros Fund Management is among the investment management firms that profited from betting against the Yen. Last Friday, the Bank of Japan surprisingly boosted its stimulus further to reach its target inflation rate of 2%.
Separately, Japan’s Government Pension Investment Fund (GPIF) announced new portfolio allocations, which would double its investments in domestic and foreign stocks.
The double dose stimulus of the Bank of Japan and GPIF sent Japanese stocks higher, but the Yen fell against the U.S. dollar. Currently, the Japanese currency is trading ¥113 per U.S. dollar.
Winners from weakening Yen
Soros Fund Management profited hundreds of millions of dollars from betting against the Yen since Friday, according to a Wall Street Journal report by Greg Zuckerman based on information familiar with the matter.
Last year, George Soros made a large bet against the Yen amid the strong monetary easing supported by Prime Minister Shinzo Abe to fuel the Japanese economy. It had been reported that Soros Fund Management made $1 billion profit from shorting the Yen at the time.
Other winners from betting that the Yen would fall include Discovery Capital Management and Eton Park Capital Management, according to people familiar with the matter. Greenlight Capital, Third Point, Passport Capital, Pharo Macro, Tudor Investments, are among many funds which are or were short the yen, according to letters reviewed by ValueWalk. In January 2013, ValueWalk stated that short yen was one of the hottest hedge fund trades.
Jeff Gundlach of Doubleline Capital had been predicting that the Yen would collapse since 2012. At the time, Gundlach stated that Japan’s quantitative easing could lead to the debasement of the Yen, which could create huge opportunities for investors. Earlier this year, Gundlach reiterated his short position on the Yen. Obviously, Gundlach is among the winners from the weakening Japanese currency.
Adam Tabak, president of alternative strategies at Well Fargo Private Bank commented, “It’s one of the most widely held, crowded positions in all of hedge funds.”
Investors expecting Bank of Japan’s action
Scott Mather, chief investment officer of U.S. core strategy at Pacific Investment Management said investors are expecting that the Bank of Japan would accelerate its stimulus.
“We’ve been expecting that…the BOJ would have to do more, because growth and inflation continue to come in below target. They just acted sooner than most expected,” said Mather.
The Bank of Japan decided to increase its monetary monetary base by ¥80 trillion per year, and triple its purchase of exchange-traded funds (ETFs) to ¥3 trillion per year real estate purchases to ¥90 billion annually.
Some of investors decided to maintain their short position on the Yen based on their expectations that it would decline further as a result of the actions of Japan’s central bank. According to Mather, Allianz unit, Pimco is maintaining its bearish position against the Japanese currency. He noted that Yen’s pace of decline is slow.