Speculators in IMM yen futures boosted their net short position during the trading week ending October 25, pushing short contracts to a 6-1/2-year high, data released on Friday showed.
Speculators increased their net short yen position to 66,682 contracts, from 66,641 short contracts the previous week. This was the largest net short yen position since May 1999. Being "long" a currency is effectively a bet that it will strengthen, while "short" positions are bets that a currency will weaken.
"A lot of people are targeting higher levels in dollar/yen," said Richard Franulovich, senior currency strategist, at WestPac Banking Corp in New York.
"The drawback against the yen is its low yield, compared with the US, Canada, and New Zealand, which have all been hiking interest rates," he added.
The Commodity Futures Trading Commission's Commitments of Traders report on speculative positioning is used by analysts as an indicator of future market direction.
Dealers often look at market positioning data for clues as to how currencies might trade in the near future. For example, extreme net short speculative positions often suggest a rebound in the currency is imminent because dealers might be uneasy about keeping such a large position open.
Similarly, extreme net long positions can suggest a currency has already appreciated a great deal and is poised for a correction lower because dealers are ready to lock in profits.