JExchange-traded funds tied to the Japanese yen currency have seen volatile swings as large investors dive back into this segment of the forex market.
The CurrencyShares Japanese Yen Trust (NYSEArca: FXY)which tracks movements in the yen against the US dollar, fell 0.3% on Friday but was still up 3.2% over the past month.
Meanwhile, the yen was trading around ¥133.48 against the US dollar.
The yen is trying to rebound from a two-decade low against the U.S. dollar after the Federal Reserve launched aggressive monetary policy on interest rates to combat high inflationary pressures of four decades, which helped to strengthen the outlook for the dollar, while the Japanese yen continued to flounder with the Bank of Japan maintaining its ultra-low monetary policy even in the face of rising inflation.
However, the recent rebound can be attributed to heightened interest from institutional investors after multi-decade lows helped lure some bargain hunters betting on a quick rebound. Salespeople at Wall Street trading desks have argued that the latest moves could come from hedge funds cashing in on bets if the yen depreciates to a certain level, the Wall Street Journal reported.
“The yen has been volatile in recent trading sessions,” Kamakshya Trivedi, co-head of global currency, interest rate and emerging market strategy research at Goldman Sachs, told the WSJ.
Market watchers attributed the latest pullback to dwindling bets on the Fed’s rate hike after weak inflation data.
Nevertheless, the yen could continue to come under pressure as the BOJ has shown reluctance to change its accommodative monetary policy. Bank of Japan Governor Haruhiko Kuroda recently said that it would be unreasonable to reverse its accommodative monetary policy to support the currency.
Speculators are also playing a larger role in yen movements.
“Things have changed in terms of how the forex market works,” James Malcolm, head of foreign exchange strategy at UBS, told the WSJ. “Japanese banks that were big players are now small players, and there’s a lot more high-frequency trading activity.”
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