hong kong<u+2014>some of the market<u+2019>s most persistent yen bulls are calling it quits. the japanese currency has dropped 2.5% against the u.s. dollar so far in october, on pace for its biggest monthly loss since may. in asian trade on monday, the dollar rose 0.1% to <u+00a5>103.90. the yen<u+2019>s recent weakness has triggered a stampede out of wagers on yen strength by investors such as hedge funds and commodity-trading advisers, which buy and sell assets based on algorithms. those investors had been some of the most stubborn yen bulls this year, holding on amid major changes in the bank of japan <u+2019>s monetary policy and previous periods when the yen fell. leveraged funds, a group that includes some hedge funds and ctas, have slashed their bets on a rising yen by 44% in the two weeks that ended oct. 18, according to the latest data from the u.s. commodity futures trading commission. the shift, which has reduced these funds<u+2019> bullish bets by nearly $5 billion, pushed the total number of options and futures contracts betting on a rise in the yen to its lowest level since the week that ended jan. 5, the data show. that is a sharp reversal from the start of october, when the number of bullish yen wagers reached its highest level since 2008. <u+201c>it does feel like people are starting to capitulate a little bit,<u+201d> said andrew scott, head of flow strategy and solutions for asia pacific at soci<u+00e9>t<u+00e9> g<u+00e9>n<u+00e9>rale . the recalibration of bets is the latest example of how the yen has confounded investors this year. the japanese central bank<u+2019>s decision to introduce negative interest rates for the first time in january might have been expected to drive the yen still lower following four years of declines starting in 2012. usually a country<u+2019>s currency falls when rates decline. instead, leveraged funds quickly built up their bullish yen bets as the currency started strengthening. the highly liquid currency is considered a safe haven during periods of market turmoil. as such, it first rose early this year when chinese markets hit turbulence , and received another boost after the u.k.<u+2019>s vote to leave the european union in june. the yen<u+2019>s rise also reflected some investors<u+2019> view that the bank of japan was running out of options to loosen policy further. in all, the japanese currency has gained 16% against the dollar so far in 2016. analysts say the recent twist in the yen<u+2019>s path against the dollar largely comes down to growing expectations that the federal reserve will raise interest rates before the year<u+2019>s end, a factor that has led to a broad-based rise for the greenback in recent weeks. moreover, polls showing hillary clinton is likely to win the u.s. presidential election have reduced the political risk that earlier this year might have sent investors scuttling for safe havens such as the yen. hedge funds haven<u+2019>t totally lost faith, however: leveraged funds continue to hold more bullish than bearish wagers on the yen in total, the cftc data show. the market more generally remains divided on the yen<u+2019>s outlook.<u+00a0>the average estimate for the dollar-yen pair to reach <u+00a5>102.5 at the end of january 2017 is little changed from the current level, according to consensus economics, based on forecasts from 78 banks and other financial firms. but the forecasts have a wide range, from deutsche bank <u+2019>s <u+00a5>94 to soci<u+00e9>t<u+00e9> g<u+00e9>n<u+00e9>rale<u+2019>s <u+00a5>110. the survey was conducted on oct. 10, when the dollar bought <u+00a5>103.6. <u+2018> we had expected a much bigger increase in risk aversion due to brexit. <u+2019> mitul kotecha, head of asia foreign-exchange and rates strategy at barclays in singapore, said his team now expects one u.s. dollar to be worth <u+00a5>99 by year<u+2019>s end, compared with <u+00a5>87 previously. part of the reason for the change: <u+201c>we had expected a much bigger increase in risk aversion due to brexit,<u+201d> he said, which would have driven the yen higher. additionally, the boj<u+2019>s introduction of a 10-year interest rate target of around 0% should steepen the yield curve and bolster profits at big banks, which had been loud critics of the boj<u+2019>s negative-interest rate policy. that, in turn, should give the central bank more room to cut rates further into negative territory, said mr. kotecha. <u+201c>it<u+2019>s an obstacle to a firmer yen,<u+201d> he added. write to saumya vaishampayan at saumya.vaishampayan@wsj.com
as japan<u+2019>s yen weakens, bulls stampede away  - wsj
saumya vaishampayan