Break in Nikkei/yen correlation drives hedge fund activity

Nikkei lag to recent yen depreciation attracts hedge funds back to Japan using forex contingent options

Japanese parasol

Hedge funds have been using foreign exchange contingent options structures to cheapen the premium and resume bullish Japan bets after the long-term inverse correlation between yen and equity market value broke down but their long Nikkei view remained intact.

Yen up, Nikkei down, and vice versa, has underpinned global investors' bets on Japan for some time but after being caught out on the long Nikkei trade at the start of the year, hedge funds have been more cautious. However, a recent

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