Home Business Hedge Funds Find Favor in USD/JPY as Abenomics Trade ‘Unwinds’

Hedge Funds Find Favor in USD/JPY as Abenomics Trade ‘Unwinds’

Evidence of long USD/JPY exposure being added post Fed…. In Liquid Cross Border Flows, 17 June 2013 BAML highlighted that continued reduction of hedge fund long positioning would be necessary to extend the correction in USDJPY. In that report BAML noted:


The unwind of the Abenomics trades continues As the JPY strengthened further last week, we saw the first positive aggregate flow. Hedge funds stopped fighting the move and cut their long USD/JPY positions further as Abe’s third arrow on structural reforms disappointed. Moreover, the absence of foreign flow into Japanese equities during the last three weeks suggests that the Abenomics trades remain at risk. USD/JPY positioning remains long and could unwind further if hedge funds, which have dominated the Japan trade, continue adjusting their positions.

Post-FOMC, John Hopkinson, FX strategist at BAML notes volatility positioning indicators instead point to hedge funds looking to add to long USDJPY positions, with the risk reversal in the front end returning to positive territory.

USD/JPY: MAA suggests speculative positions not a significant risk

Long USDJPY positioning as reported by the CFTC has been reduced broadly in line with the value indicated by BAML’s MAA model. This suggests that existing speculative positions are not a significant risk to price action and that there is scope for additional long positions to be added.

Other popular FX positions amond funds 

In the June 17th report BAML noted:

Stop losses from very stretched long USD-G10 and EM positions have caused a lot of market pain. The move towards the exit got stronger last week as real money joined the flow. Some positions remain stretched, but more selective hedge fund allocation points to expectations that the FOMC will provide some clarity this week. In the meantime, our flows point towards further GBP, CAD and JPY strengthening.