IMM speculators yen shorts

Speculators amassed the largest position against the yen ever and built up record bets on sterling in the latest week as hunger for yield continued to be the driving force in the foreign exchange market, data showed on Friday.
The report covering the week to Tuesday showed investors extended their net short yen position to 164,860 contracts from 138,146 contracts in the prior week, the Commodity Futures Trading Commission data said. The value of the position grew more than $2 billion to $16.9 billion in the latest week.
"This certainly points to the continuing popularity of the yen carry trade," said David Powell, currency analyst with IDEAglobal in New York. In the carry trade, investors borrow in low-yielding currencies in order to buy higher-yielding ones and profit from the spread.
The yen has been a clear sell for many investors because the Bank of Japan has rock-bottom interest rates, at 0.25 percent. One of the most popular carry currencies has been sterling because it has a relatively high interest rate among the most liquid currencies. On Tuesday, sterling traded at a 14-year high against the yen, at 241.49 yen. The CFTC data showed speculative investors increased their net long sterling position to a record 94,728 contracts, up from the previous week's 84,318 contracts.
Finding the most profitable carry trades has been the overriding trend so far this year, continuing from 2006, when the search for yield also was the theme of asset markets. "As 2007 got underway all the market commentary would suggest volatility would remain low, liquidity high and therefore the carry trade would continue," said Powell.
International Money Market speculators raised their net long dollar position to $1.13 billion, from $1.04 billion the previous week, according to Reuters calculations. Net US dollar positions are measured against the euro, yen, sterling, Swiss franc and Canadian and Australian dollars. Being "short" a currency is effectively a bet that it will weaken, while being "long" is a bet it will strengthen.
Extreme net short or long positions in a currency often suggest a reversal in price action is imminent because dealers might be uneasy about keeping such a large position open. IMM data reflect non-commercial or speculative accounts. The non-commercial positioning is of particular interest as it provides a proxy for broader speculative activity.