The volume of bets by hedge funds against the Japanese yen has surged to its highest level since 2007, the peak of the "yen carry trade."

This development comes as the yen has already fallen to its lowest level in 40 years.

According to data released by the U.S. Commodity Futures Trading Commission on July 6 (local time), the volume of bets on further yen depreciation by leveraged traders in the options and futures markets rose to approximately 138,000 contracts as of June 30.

This surge in bearish bets comes as the yen breached the 162 yen per dollar mark, hitting its lowest level since December 1986, fueling speculative speculation regarding the timing and possibility of market intervention by Japanese authorities.

As of 1:00 p.m. on July 7, the yen is trading at 161.88 yen in the Tokyo foreign exchange market.

The yen remains one of the worst-performing major currencies this year, with a significant interest rate gap between Japan and countries like the United States weighing on its value.

While it was expected that the Bank of Japan's interest rate hike in June would provide support for the yen, the currency was more significantly impacted immediately after Kevin Warsh, a member of the U.S. Federal Reserve, pledged to restore price stability.

The yen is also under pressure due to Prime Minister Sanae Takaichi's large-scale spending plans and her preference for monetary easing.

Japanese Finance Minister Satsuki Katayama reiterated last week that the government could take appropriate measures regarding the exchange rate at any time.

Japanese authorities previously spent a record 11.73 trillion yen (approximately 72.7 billion dollars) over a one-month period starting April 28 to defend the yen.

However, Tatsuo Yamazaki, the former Vice Minister of Finance for International Affairs who led Japan's foreign exchange policy, refuted these bearish views, arguing that "the yen should be up to 20% stronger than it is now."

In an interview with Bloomberg, he stated that a level around 130 yen is appropriate.

His reasoning is that while the possibility of further interest rate hikes by the Bank of Japan is high, the probability of a rate hike by the Federal Reserve is only about 50%, making it uncertain whether the interest rate gap between the U.S. and Japan will widen further.

He dismissed some market predictions that the currency could reach the 200 yen level or higher.

Nevertheless, market experts in Japan believe there is a possibility that the yen could weaken beyond the current 160 yen per dollar range to reach the 170 yen level.

The Nihon Keizai Shimbun (Nikkei) reported that market observers suggest the yen's depreciation could intensify toward the 170 yen per dollar range if the funding sources for the Takaichi cabinet's expansionary fiscal policy are not clearly defined.

A market analyst at Sumitomo Mitsui DS Asset Management told the newspaper, "If the scale of the Japanese government's budget expands further, it will become fuel for selling the yen," and projected the yen's value to be around 165 yen per dollar.

An expert at Fukuoka Financial Group offered a pessimistic outlook, stating that intervention attempts by Japanese authorities are almost meaningless, adding, "Even if they intervene, it will only delay the slide to the 170 yen range by one to two months."

Meanwhile, Minoru Kiuchi, Japan's Minister of State for Economic and Fiscal Policy, refuted claims that the Japanese government is inducing low interest rates, emphasizing that "there is no change in the government's position that the specifics of monetary policy should be left to the Bank of Japan."

(Photo: Yonhap News)