TOKYO -- Hedge funds other speculative traders are easing up on yen-selling, prompted by concern that the U.S. will not be safe from the global economic slowdown.
Net short positions in the yen held by noncommercial speculative traders came to 71,738 contracts between Oct. 15 and Oct. 21, the least in about three months, according to data from the U.S. Commodity Futures Trading Commission. The 29,409-contract decrease from the previous week was the sharpest drop in seven months.
"It's a result of the awareness in the market that the U.S. cannot escape the economic slowdowns in the world," said Koji Fukaya of FPG Securities.
Many had earlier sold the yen while buying the dollar in the expectation that the American economy would stay on a recovery track no matter what. But now, optimism appears to be fading, with the International Monetary Fund downgrading the world economic outlook and some Federal Reserve insiders expressing concern over dollar appreciation. Lackluster economic indicators in the U.S. have also likely played a part.
The yen's decline against the dollar has lost momentum, although the Japanese currency weakened again to its softest level against the greenback in three months Monday.
"We are not convinced that the U.S. economy will remain brisk, so it's hard to trade," a forex dealer at a Japanese bank said.
The U.S. Federal Open Market Committee will meet for two days through Wednesday. No new steps beyond ending quantitative easing are expected this time.
While hopes are growing that the Bank of Japan will step up easing measures, which could weaken the yen, many expect the BOJ to keep its options open until the Abe government decides whether to raise the consumption tax again, to 10% next year, according to Daisaku Ueno of Mitsubishi UFJ Morgan Stanley Securities.
Many observers expect the Japanese currency to trade between 106 and 109 against the dollar through the end of the year.