Japanese Elections Accelerate Carry Trade Strategy in Yen Markets

ConfusedWhale · 2026-02-13T21:04:43+00:00

After the elections in Japan, hedge funds increased their short positions on the yen, anticipating its depreciation. The demand for call options exceeded that for put options, reflecting growing confidence in a weaker yen, which rekindled carry trade strategies in the current political context.

ConfusedWhale

2026-02-13 21:04:43

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Following the elections held over the weekend in Japan, hedge funds intensified their short positions against the yen, confirming expectations of further currency depreciation. Market data revealed a significant shift in the behavior of speculative traders. According to reports from Jin10 and the Deposit and Settlement Corporation, the trading volume of dollar-yen call options valued at $100 million or more far exceeded that of put options in the days after the vote. This behavior reflected growing confidence in a weaker yen scenario.

Hedge Funds Increase Short Positions After Election Results

With the market stabilizing after the elections and extreme volatility in risk assets decreasing, speculative funds resumed their traditional operations vigorously. Sustained demand for call options pushed down hedging premiums, which reached levels not seen in nearly two weeks. This pattern suggested that the market anticipated a continued depreciation trend of the yen against the US dollar.

Options Market Reflects Yen Weakness Amid Japanese Elections

Tuesday’s detailed data show a clear asymmetry between flows: while dollar-yen buyers renewed bullish positions on the US dollar, yen sellers reduced their participation. This movement in the derivatives market anticipated pressures on the yen that could persist in the medium term.

Carry Trade Regains Prominence After Voting

Antony Foster, head of G-10 spot operations at Nomura International in London, commented retrospectively: “Once the market processed the Japanese election results and extreme volatility subsided, funds massively returned to carry trades and arbitrage operations. The elections reinforced the consensus that dollar-yen would continue to push higher, especially considering the political context that followed.”

This return to traditional carry trade strategies marked a significant turning point for currency markets, particularly for those operating positions backed by interest rate differentials between economies.

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