Hedge funds investing in Japan increased their short-selling of companies sensitive to the yen's fluctuations as the currency surged amid the U.S. credit downgrade and concerns that Europe can't contain its debt crisis, Deutsche Bank AG said.
"What we have seen is selective shorting of foreign-exchange-sensitive companies increase," said Christopher Donald, managing director and the head of global prime finance trading in Japan at Deutsche Securities Inc. in Tokyo. "If things were to worsen, some people may be looking to put on some shorts."
The yen has climbed 5 percent over the past three months and was trading at about 76.70 to the dollar in Tokyo on Friday afternoon, near its postwar record of 76.25 touched March 17. A stronger yen reduces the value of overseas profits when Japanese exporters convert it back into their home currency.