Hedge Funds Cut Yen Shorts by Most Since Pandemic on Omicron

(Bloomberg) -- Hedge funds slashed their bearish yen wagers by the most in 20 months last week as the spread of omicron boosted demand for haven assets.

Leveraged funds cut net-short yen derivatives positions by 40% in the week ended Nov. 30, in the biggest net contract purchase since March 2020, according to the latest data from the Commodity Futures Trading Commission. The yen has strengthened more than 2% against the dollar since hitting a near five-year low on Nov. 24.

The move coincided with a worldwide shift out of risk assets into havens like the yen and Treasuries on concern the new strain will derail the global recovery. Westpac Banking Corp.'s Risk Aversion Index surged to the highest since February 2020 last month.

Risks to the yen are on the upside “while omicron concerns remain,” Commonwealth Bank of Australia strategists including Kim Mundy wrote in a note. “Safe‑haven status is a strong driver of the yen during times of heightened uncertainty.”

Read: Yen Rebound Spurs Flight for Option Hedges in Turnaround Sign

Still, the reduction in bearish wagers has created room for speculators to pile up yen shorts again, according to JPMorgan Chase & Co.

The position data indicate “the headroom for rebuilding yen shorts should market stresses alleviate and the focus turn back to policy divergence,” strategist Patrick Locke wrote.

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