Original Article by Ruth Carson and Masaki Kondo for Bloomberg News
URL: https://www.bloomberg.com/news/articles/2025-09-10/hedge-funds-ramp-up-yen-option-wagers-on-boj-s-hawkish-signal
Title: Hedge Funds Expand Yen Option Bets on Hawkish BOJ Shift
Hedge funds are significantly boosting their wagers on a stronger Japanese yen through options markets, responding to increasing signals from the Bank of Japan (BOJ) that a policy pivot might be on the horizon. As the central bank’s tone turns more hawkish, traders are piling into derivative instruments that would benefit from a potential monetary tightening and a subsequent yen rally.
In recent weeks, activity in yen call options — contracts that increase in value when the yen appreciates — has seen a marked uptick. Many of these bets focus on the near-term, particularly the weeks leading up to the BOJ’s next policy meeting and key inflation data releases.
Signals from the BOJ
The BOJ has started dropping explicit hints that it may soon move away from ultra-loose monetary policy. Analysts interpret several comments from Governor Kazuo Ueda and other central bank officials as signs that discussions on rate hikes are gaining momentum. The BOJ has long maintained negative interest rates and aggressive asset purchases to fight deflation and stimulate growth. However, persistent inflation and the desire to normalize policy are putting pressure on authorities to rethink their stance.
Key developments influencing market sentiment include:
– Governor Ueda’s statement that the BOJ could have enough data by year-end to assess whether sustainable inflation has taken hold.
– Rising core inflation, which has stayed above the BOJ’s 2 percent target for over a year.
– Labor unions pushing for higher wages, suggesting inflationary pressure may persist.
As Japan inches closer to rate normalization, hedge funds are positioning themselves to profit from a potential yen rebound that such a shift would likely trigger.
Option Market Activity Surges
Traders in both Tokyo and offshore financial hubs are increasing their exposure to yen upside through short-dated options contracts. “Buying call options on the yen has become one of the most efficient ways to hedge or speculate on a policy change,” said one currency strategist based in Singapore.
Data and observations from the options market reveal:
– A spike in one-month risk reversals, an options metric that measures demand for calls versus puts on the yen. The value recently turned more positive, reflecting growing appetite for bullish yen positions.
– Notable increases in open interest for yen call options at strike levels between 141 and 143 per dollar, compared to the pair currently trading around 147.
– Higher implied volatility in the short end of the options curve, suggesting traders anticipate sharp movements around upcoming data and BOJ events.
Some hedge funds are targeting even more ambitious yen strength, with bets placed on levels as strong as 135 or even 130 per dollar over the next few months. These wagers imply high confidence that if the BOJ adjusts policy, the market reaction could be swift and significant.
Macro Background and Currency Performance
Japan’s ultra-loose monetary experiment has been a cornerstone of its economic policy since the early 2010s. While the approach has helped stave off deflation, it also led to years of low returns for domestic savers and distortion in the bond market.
The recent policy shift talk is occurring against the backdrop of:
– A persistently weak yen, down over 20 percent since early 2022, as the BOJ maintained dovish policy while other central banks, particularly the Federal Reserve, aggressively hiked rates.
– The yen trading at multi-decade lows against the US dollar, sparking concerns within the Japanese government about the currency’s impact on import costs and household purchasing power.
– A growing divergence between Japan’s domestic inflation and wage trends, supporting the case that current accommodative policy may no longer be justified.
Meanwhile, the Federal Reserve in the United States appears close to finishing its rate
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