Japanese Retail Traders Boost Dollar Shorts to Most Since 2008

Japan’s retail traders turned the most bearish on the dollar in almost two decades last month amid speculation that official intervention may weaken the currency against the yen.

The traders’ net dollar short positions more than quadrupled to ¥2.79 trillion ($17.2 billion) from the previous month, according to data from the Financial Futures Association of Japan. That’s the largest ever short position in data going back to late 2008. While these bearish bets could have been established against other currencies as well, large open positions in the yen indicate they were largely dollar-yen holdings.

Retail traders dominate Tokyo spot trading, and their stance may help determine if government intervention is effective in shoring up the yen, which is one of the worst-performing Group-of-10 currencies this year. With these traders already heavily positioned for a weaker greenback, this may suggest that official sales of the dollar against the yen could have less impact than otherwise.

“These retail traders would sell the yen to cover positions” when intervention takes place, pushing dollar-yen back in the opposite direction, said Hideki Shibata , a senior rates and foreign-exchange strategist at Tokai Tokyo Intelligence Laboratory Co. As “there’s also heavy dollar-yen buying interest from local importers waiting at lower levels,” these positions may discourage the Ministry of Finance from stepping into the market, he said.

The ministry ¥11.73 trillion in a month through May 27 to prop up the yen, but it has still weakened more than 4% from a 10-week high reached on May 6.