The yen fell, halting a rally that matched its longest under Japanese Prime Minister Shinzo Abe amid anxiety over the outcome of the UK’s referendum on EU membership, with separate polls showing leads for both sides.
Japan’s currency weakened as a momentum indicator, the relative strength index, hovered at a level that signals it might have moved too far, too fast.
Japanese Minister of Finance Taro Aso yesterday said in Tokyo that the Japanese government would not intervene in currency markets without due consideration.
The British pound was little changed after a two-day, 3.5 percent rally before tomorrow’s vote.
A gauge of the US dollar fell for a fifth day before US Federal Reserve Chair Janet Yellen’s testimony on monetary policy to lawmakers yesterday and today.
“The RSI indicator is suggesting dollar-yen is oversold at current levels,” Singapore-based Australia & New Zealand Banking Group Ltd senior foreign-exchange strategist Khoon Goh said.
Even then, the yen remains resilient “due to the dollar staying weak, and markets seeing little chance of FX intervention by Japan,” Goh said.
The Japanese currency dropped 0.4 percent to ¥104.33 per US dollar at 6:51am in London, after matching the longest winning streak since September 2012. It surged 3 percent versus the dollar in the past seven days as anxiety about a potential British exit from the 28-nation bloc drove investors to the safest assets. The yen touched ¥103.55 last week, the strongest level since August 2014.
The 14-day relative strength index for the dollar-yen fell to 29 yesterday. A reading below 30 is a signal to some traders that a currency pair is poised to reverse direction.
Abe came into office in December 2012 brandishing his “three arrows” of bold monetary easing, flexible fiscal policy and a growth strategy to encourage business investment that included corporate tax cuts.
The yen has appreciated more than 15 percent this year to outperform its developed-market peers after tumbling to a 13-year low in June last year. A weaker currency is crucial to increasing growth and consumer prices.
Bank of Japan Governor Haruhiko Kuroda remains far from his price target after more than three years of unprecedented asset purchases.
“The Brexit vote clearly has one risk-averse outcome, so the market is buying the yen for insurance,” Auckland, New Zealand-based Westpac Banking Corp market strategist Imre Speizer said.
“This may continue until Thursday, after which the direction of the yen will depend on whether the outcome is ‘stay,’ in which case yen will be sold, or ‘leave,’ in which case more yen will be bought,” Speizer said.
The pound was little changed at US$1.4702 as Britain’s referendum remained too close to call two days before the vote.
The Bloomberg Dollar Spot Index retreated 0.1 percent as traders cut back their bets on higher US borrowing costs, pricing in less than even odds for an increase as late as February next year.
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