Shigeta Kazuo "Hawk voice" has difficulty changing the declining trend, the Japanese yen short sellers still deadlocked.

The market is increasingly speculating that the Bank of Japan will raise interest rates this month, but participants are still betting that the yen will continue to weaken against the US dollar. Traders at Bank of America, Nomura Holdings, and Royal Bank of Canada Capital Markets say that investors' positioning reflects such bets. The "pain index" for the yen, a measure of traders' overall positioning by Citigroup, remains well below zero, indicating that the market's pessimistic sentiment towards the currency continues. Even though Bank of Japan Governor Haruhiko Kuroda hinted at a possible rate hike soon and reportedly said the central bank is prepared to take action in December (unless there is a major economic or financial market shock), investors are still sticking to their bearish bets. The logic behind this is that even if the Bank of Japan takes action, Japanese yields are expected to remain significantly lower than those in the US, which will support the US dollar. "Positioning continues to favor a gradual increase in the US dollar against the yen until the end of the year, and this trend is unlikely to reverse unless the Bank of Japan brings about a significant surprise shock," said Ivan Stamenovic, G-10 currency trading head for Bank of America in Asia Pacific (based in Hong Kong). He noted that Kuroda's hawkish comments have sparked discussion about the currency pair, but market sentiment has not undergone a substantial shift. If the yen weakens further, its impact could be significant, as it would raise import costs, exacerbating inflation that is already at high levels. This could also complicate Prime Minister Fumio Kishida's plans to alleviate the impact of the cost of living crisis on households. Japanese Finance Minister Satsuki Katayama has been trying to curb the yen's weakness, but with limited success. Speculation about a delayed interest rate hike by the Bank of Japan is partly fueling this weakness. Even after Kuroda made his clearest signal yet about an impending rate hike this month, the yen rose only slightly. Nomura's senior FX options trader, Sagal Sambrani, said that the positioning of the yen reflects investors' views that, despite inflation still being well above the Bank of Japan's target, Japan's monetary policy appears to remain dovish in the medium to long term. He noted that after Kuroda's comments, hedge funds have gradually reduced their bets on the US dollar rising against the yen, but "most funds still hold that position". Rob Turner, Director of Electronic FX Trading at Royal Bank of Canada Capital Markets, said that "speculative positioning" leans towards the US dollar rising against the yen, but he also noticed a slight unwinding of this position since late November. The options market also shows a similar trend. According to data from the Chicago Mercantile Exchange, the volume of bullish options on the US dollar against the yen (profit when the currency pair rises) was about 40% higher than bearish options (profit when the currency pair falls) the day after Kuroda's speech. Looking ahead, data on Japanese labor cash earnings scheduled for release on Monday could provide clues as to whether wage growth supports the Bank of Japan's rationale for a rate hike in December. The forward market now prices in a probability of about 91% for a 25 basis point rate hike in December, up from 58% at the end of November. Although expectations for a December rate hike have heated up, the general consensus still leans towards a weaker yen. UBS Group has lowered its year-end yen rate forecast from 152 yen to $1 to 158 yen, while Bank of America expects the yen to fall below the 160 yen level by early 2026. Last Friday, the yen closed at 155.33 yen to $1.