By Ankur Banerjee and Rae Wee
SINGAPORE, Dec 19 (Reuters) - A vague outlook from Bank of Japan Governor Kazuo Ueda on Friday has given investors the nerve to add to their bets against the yen, which could
soon put Japan's currency back at uncomfortably low levels for a government concerned it may already be too cheap.
These bets are particularly concentrated in euros and Australian dollars, dealers said, and grew after a well-telegraphed hike came with little sense of urgency to raise rates further.
After the Bank of Japan took its benchmark rate to a three-decade high of 0.75% earlier in the day, Ueda told reporters future decisions would be data-dependent and made on a meeting-by-meeting basis, and he offered no new details about where Japan's neutral rate may lie.
That left investors feeling relaxed about so-called "carry" positions, where they borrow yen cheaply and sell it to pay for income-earning assets elsewhere.
It's a potential headache for policymakers and Prime Minister Sanae Takaichi because a falling currency raises the local prices of sensitive imports like energy and food, and it comes as concerns swirl over Japanese assets due to worries about the government's plans to borrow and spend.
The yen fell around 1% to 157 per dollar in the London session and skidded to a record low at 183.99 per euro, despite yields in Japan rising to new highs.
"While the market acknowledges more hikes could come, it's not fully buying into a fast or aggressive path," said Tareck Horchani, head of prime brokerage dealing at Maybank Securities in Singapore.
He said that shorting the yen against crosses avoids "getting tangled in USD dynamics" and that the Aussie and South African rand offer attractive carry while the euro play is about policy divergence as Japan is only raising rates slowly.
Japan's last rate hike was in January and, according to LSEG data, the next move is not fully priced in by traders until November 2026.
Data on speculative dollar/yen positioning was delayed by the U.S. government shutdown - and is still a little stale - but shows that a record long yen position amassed in April had collapsed by early December to reasonably close to neutral.
Bart Wakabayashi, branch manager at State Street in Tokyo, said clients were choosing to take yen views in other currencies, with overweight positions in Aussie/yen and euro/yen near their biggest in five years.
"I think that the yen will remain under pressure," he said.
CARRY ON
Friday's selling has the yen right back where it started the year and in a zone where domestic companies and Japan's government have been uncomfortable.
Last month Finance Minister Satsuki Katayama said the negative effects of yen weakness had started to become more pronounced than the positives, and as the dollar exchange rate neared 158 yen officials have repeatedly warned of possible intervention.
A Tokyo Shoko Research poll published a week ago that surveyed more than 6,000 Japanese companies found that 41.3% felt the yen was too cheap and that domestic firms were looking for a rate around 133.5 per the dollar, roughly 18% stronger than current levels.
Turning around a currency that has been sliding fairly relentlessly for five years is also likely to be a task beyond just the central bank, strategists said.
"The weak yen is more of a delayed effect of the over-easing of the last 10 years, before Ueda stepped in, and it's really hard for Ueda to crack that just by a few hikes," said Naka Matsuzawa, Japan macro strategist at Nomura in Tokyo.
"We need more messages coming from Takaichi or the government side," he said, on structural reform, deregulation and measures to drive growth and inbound investment.
To be sure, in the near term the finance ministry can sell dollars to stop yen falls and scare off speculators, but many analysts don't see that as a durable strategy - especially if the shift in tone that preceded the hike hasn't boosted the yen.
"I don't really see a lot of signal or a continuation of hawkishness or hawkish skew towards future hikes," said Peiqian Liu, Asia economist at Fidelity International in Singapore.
As one trading head from a large bank put it, the lack of any surprises on Friday was encouraging for carry traders:
"For those who already have carry positions, they can get relaxed and go on holidays."
(Writing and additional reporting by Tom Westbrook; Editing by Hugh Lawson)
