Japanese Elections Reignite Bullish Bets on the Dollar-Yen Among Hedgers

With Japan’s national elections approaching, the main players in the currency market are increasing their bullish positions against the yen, anticipating further downward pressure. The situation reflects an increasingly coordinated strategy among multiple hedge funds that see electoral volatility as an opportunity to expand their gains through carry trade operations.

Clear Signals in the Derivatives Market

Market data perfectly capture this shift in sentiment. According to Jin10 reports, the Clearinghouse reported significant trading volume in call options on the dollar-yen pair, with values of $100 million or more during the start of this week, far exceeding the flow of equivalent put options. This imbalance reveals traders’ confidence in a continued bearish trend for the yen.

The premium for protection against a dollar-yen decline over a one-month horizon has plummeted to levels not seen in the past ten days, an additional indicator that investors are prioritizing coverage of long positions over hedging against downside risks. This movement suggests that the market has already partially priced in the volatility expected from the electoral decisions.

Carry Trade Strategy Returns to the Forefront

After a period of corrections in commodity markets that moderated rampant speculation, hedge funds are redirecting their resources toward arbitrage operations and, especially, toward classic carry trades. Antony Foster, head of spot FX trading for the G-10 segment at Nomura International’s London office, summarized the situation: “Having reached some stability after extreme volatility in gold and silver, the market seems to be repositioning itself in yield-driven trades again. Considering that the Japanese elections are happening in the coming days, there is a widespread expectation that the dollar-yen will break additional highs, particularly if the results favor sectors or policies that reinforce yen weakness.”

Carry trade, which involves borrowing yen at low rates and investing in higher-yielding assets in other currencies, has become a central vehicle for these funds. The context of Japan’s elections adds an extra layer of uncertainty that will likely keep traders alert to any signals of changes in the country’s monetary or fiscal policy.

The renewed bearish stance on the Japanese currency reflects how electoral events can quickly reshape trading dynamics globally, with derivatives data confirming that this trend is only in its early stages.