Hedge funds are starting to bet that the yen will break out of its narrow trading range and strengthen against the US dollar.
Data from the Chicago Mercantile Exchange shows that leveraged investors are building positions in the options market that would profit if the yen breaks out of its current narrow fluctuation range around 147 and appreciates above 145 against the dollar.
Multiple factors could drive the yen higher against the dollar, including US President Donald Trump's attempt to remove Federal Reserve Governor Lisa Cook and pressure the Fed to cut interest rates. Additionally, political turmoil in France could enhance safe-haven demand for the yen, while this week's weak US non-farm payroll data could strengthen bets on Fed easing policies.
Mukund Daga, Head of Asia FX Options at Barclays in Singapore, stated that following a series of news reports, including France's potential no-confidence vote and the dispute between Trump and Lisa Cook, some in hedge fund circles have finally shown renewed interest in holding USD/JPY downside options.
CME data reveals that on August 26, following Trump's dispute with Cook and France's announcement of a no-confidence vote, trading volume in USD/JPY put options was four times that of call options.