Ignore the warning! Hedge funds are aggressively buying USD/JPY call options, betting on the yen to depreciate to 165.

Hedge funds are ignoring Japan's official warnings of currency intervention, continuing to place bets in the options market - their core logic is that they believe the exchange rate of the yen to the dollar needs to fall to near the 165 level before the Japanese authorities will initiate substantial market intervention. It is understood that the yen hit an 18-month low against the dollar on Wednesday, prompting the Minister of Finance and the forex affairs regulator to once again issue intervention warnings. Meanwhile, Minister of Economic Security, Sanae Takaichi, announced plans to hold early elections, further strengthening market expectations for the continued rise of the dollar against the yen - investors generally believe that if the ruling Liberal Democratic Party wins a majority in this election, the Japanese government will gain new authorization to advance expansionary fiscal and monetary policies, potentially exacerbating pressure on the depreciation of the yen. The yen against the dollar closed up 0.4% to 158.46 on Wednesday. Nomura International Plc's London senior forex options trader Sagar Sambrani analyzed, "Hedge funds' demand for investments in the high-dollar-yen structure is still ongoing, with continued direct option buying behavior and leveraged trading structure deployment. These structures generally bet that the central bank may initiate intervention action in the 160-165 exchange rate range." He further explained that these leverage tools specifically include innovative varieties such as reverse knock-out options - when the underlying exchange rate touches the predetermined price barrier, the contract will automatically terminate, making it more cost-effective than standard call options. According to data from the Depository Trust & Clearing Corporation (DTCC), in options trades of $100 million nominal value or more on Wednesday, the volume of call options traded exceeded put options by more than double, a significant difference that intuitively confirms market expectations for a strong bullish trend in the dollar against the yen. It is worth noting that the current exchange rate level has risen to a critical point where the Ministry of Finance of Japan implemented currency intervention in July 2024 to support the yen, forming a delicate resonance between the "policy intervention memory point" and the "current market bullish sentiment." The rapid rise in the dollar against the yen and the threat of intervention by the Bank of Japan have prompted some investors to increase their put options positions for hedging or speculation. Japan's most recent currency intervention lasted for two trading days, with the dollar against the yen falling 2.6% from a high of 161.76 on the first day of intervention. Mukund Daga, global forex options director at Barclays Bank, analyzed, "Out of cautious consideration for the potential risk of currency intervention, some investors are using options tools to conduct short-term downward hedging operations."