Traders Bet on Potential Change in BoJ Policy

The Japanese yen has plunged this year as major central banks increase interest rates in a bid to tame soaring inflation.

The Japanese currency hit a 20-year low against the dollar on Wednesday. However, according to a report by the Wall Street Journal, some contrarian traders are betting on a reversal.

A weak yen will drive prices higher for Japanese consumers, increasing pressure on policymakers.

The WSJ quoted Lorenzo Di Mattia, chief investment officer at Sibilla Capital, as saying that “everybody is joining the hawkish central banks, everybody except the BOJ. The chances are that it will have to adjust as well.”

Betting against Bank of Japan policy in the past has burned many investors, with the central bank maintaining its current policy for several years.

However, the WSJ said Caygan Capital, an investment firm managing roughly $500 million, began shorting Japanese government bond futures this month, believing the BOJ has achieved its policy goals and will abandon its yield curve control policy.

Meanwhile, other investors have exited short bets against the yen, with some potentially going long.

Chase Muller, head of global macro and co-head of volatility strategies at One River Asset Management, told the WSJ that “there’s a big risk in the carry trade.”

Adding: “If you do get a reversal from the BOJ, I think the reversal could be quite swift and significant.”

By Sam Boughedda