Yesterday currency intervention conducted by Japan to weaken yen from its 15-year maximum made lose hedge funds betting on the strengthening of Japanese currency.

Many funds were looking forwards to the further yen’s appreciation on the negative outlook for the world’s economy regarding it as a refuge currency. Some investors, especially Japanese, were stimulated by low returns in global stock markets. Yields on Japanese long-term government bonds remain under 2% but Treasuries yields aren't much higher. As a result, there is little incentive to go to the overseas markets.

Japanese currency that climbed by 10% since the beginning of this year slumped by 3% on Wednesday as Japanese monetary authorities sold the national currency.

John Taylor managing FX Concepts, a $7.8 billion hedge fund, notes that the situation is serious and that it’s necessary to buy some dollars. Mr. Taylor believes that yen may return higher in 1-2 months. However, he noted that the Bank of Japan tends seems to be quite decisive when the rate reaches extreme levels, so future dynamics of yen looks uncertain.

Even though the fund cut so far its portfolio in trades wagering on yen from 55% to 35%, it lost 2% on Wednesday. All in all, FX Concepts gained 12% this year also due to earlier advance of yen. Among other losers there are Aspect Capital Ltd. and Winton Capital Management.

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