US Funds Score Big By Betting Against Yen

Burning Heart

US Funds Score Big By Betting Against Yen

Some of the biggest U.S.hedge-fund investors have made billions betting against the yen, exploiting Japan'sdetermination to weaken its currency and boost its economy.

Wagering against the yen has emerged as the hottest trade on Wall Street overthe past three months. George Soros, who made a fortune shorting the Britishpound in the 1990s, has scored gains of almost $1 billion on the trade sinceNovember, according to people with knowledge of the firm's positions. Othersreaping big trading profits by riding the yen down include David Einhorn'sGreenlight Capital, Daniel Loeb's Third Point LLC and Kyle Bass's HaymanCapital Management LP, investors say.

The growing trade has itself helped pressure the yen, which has slid almost 20%in about four months. That, in turn, is helping fuel what could become aworld-wide currency war. Countries such as Germanyand France have criticized Japan's policies, while others have threatened to take action to reduce thevalue of their own currencies to remain competitive with Japan.Like Japan, many countries depend on exports, which are more profitable when theirown currencies are lower.

Investors began jumping into the trade late last year, ahead of the election ofShinzo Abe as Japan's prime minister. When Mr. Abe and others were unusually open in theirrhetoric about driving down the currency, traders added to their positions,helping the yen weaken. Soon, salespeople and traders at banks were tellinghedge funds and other investors that the time was right to make big betsagainst the yen.

Mr. Abe's election, and the selling by hedge funds, had a big impact. OnWednesday, the dollar bought about 93 yen, from about 79 yen in mid-November.'It's a bet on Abe-nomics' someone close to the Soros firm says.

Many others have come to the same conclusion. Among the most vocal proponentsof the trade is Robert Ettinger, the head of Bank of America's BAC -0.61%options trading group for currencies in the Group of 10, investors say. Mr.Ettinger has spoken about how he 'loves' the bearish yen trade, according to aninvestor who heard him speak recently. Bank of America's trading desk also hasmade money on the trade, according to people with knowledge of the firm'spositions. Mr. Ettinger declined to comment.

Few investors, though, have made as much money as Mr. Soros. The 82-year-oldinvestor's $24 billion Soros Fund Management has made close to $1 billion ofpaper profits since mid-November wagering on yen weakness, according to peopleclose to the matter.

The firm, which returned cash to outside investors last year, still investsmoney for Mr. Soros and his family. It manages about $15 billion itself andallocates the rest to other investors. Soros Fund Management has been led sincelast summer by Scott Bessent, who increased the yen position late last year.The Soros firm also has done well owning Japanese stocks, which have beenrallying. Japanese shares represent about 10% of the firm's internal portfolio,according to people close to the firm.

Betting against the yen isn't for the faint of heart. Japanhad for years failed in its efforts to lower its currency and reignite itseconomy and stock market. Many who adopted short positions on the yen and onJapanese government bonds during that period got pounded when the currency andthe bonds instead strengthened. Shorting Japanbecame known on Wall Street as a 'widow maker.'

'You aren't a macro trader if you haven't lost money betting against Japan,'one trader said.

As quickly as investors raced to short the yen they could just as easily rushto end this trade, sending the currency higher again, especially if investorsconclude the Japanese government is backing off its antideflation campaign.

GREGORY ZUCKERMAN/JULIET CHUNG