IMM speculators increase net short yen position

Speculators in IMM yen futures raised their net short positions during the trading week ending May 17, data released on Friday showed. Speculators grew their net short yen positions to 47,883 contracts, compared with 9,563 shorts the previous week. This week's short yen contracts were the highest since April 2005. Dollar long positions, meanwhile, grew across the board, reflecting generally improved sentiment on the currency. Being "long" a currency is effectively a bet that it will strengthen, while "short" positions are bets a currency will weaken. Sean Callow, currency strategist at IDEAglobal in New York, said this suggested that markets have pared back expectations of a near-term revaluation of the Chinese yuan, which is currently pegged at 8.28 to the dollar.
"A lot of people seemed to have given up on the revaluation trade. Of course dollar sentiment has improved across the board," he said. Traders have used the yen as a proxy for the tightly held yuan, noting that if China allowed its currency to strengthen, Japanese monetary authorities would also be more comfortable with a stronger yen.
Over the last couple of months, there had been increased speculation that China will adopt a more flexible exchange rate regime sooner than what many had expected.
But Chinese monetary authorities have not given any timeframe as to when they would actually revalue the yuan.
Japan's sluggish equities market has also undermined sentiment on its currency. Analysts say foreign investors have been selling Japanese shares of late, despite a sharp rally earlier this week.
Tom Rogers, senior currency analyst at IFRForexWatch in New York, said there has also been good demand from Japanese investors for higher-yielding overseas bonds and those flows increased sharply to 1 trillion yen in the week following Japan's return from "Golden Week".
Data from the Commodity Futures Trading Commission's Commitments of Traders report on speculative positioning are used by analysts as an indicator of future market direction.
For example, extreme net long speculative positions often signal a decline in the currency, especially if that speculative position conflicts with the positioning of the more influential commercial players.
Speculators also increased their net short euro positions to 13,488 contracts, from the previous week's shorts of 1,544.