Fri, Feb 12, 2016 page5

• Yen rises to almost wipe declines from 2014 easing

  • Bloomberg
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  The yen has advanced to within 3 percent of the level it traded at before a surprise monetary easing by the Bank of Japan (BOJ) in October 2014 saw it plummet. Traders are wondering if policymakers would seek to arrest gains that threaten to undermine almost three years of stimulus.

  The currency has risen 7.8 percent since its close on Jan. 29, heading for its biggest two-week gain since the Asian financial crisis in 1998, even after the central bank announced a plan to adopt negative interest rates that day.

  While Japanese markets were shut for a public holiday yesterday, traders would watch for comments from officials given the yen’s strength, BNP Paribas SA said.

  

  A customer hands over 1,000 yen banknotes while making a purchase at a checkout counter of a Sankei Super, K.K. supermarket in Tokyo on Monday.

  Photo: Bloomberg

  “Markets appear to be testing the resolve of the BOJ and questioning the ability of monetary policy action to create a weakening Japanese yen,” said Sam Tuck, a senior currency strategist at ANZ Bank New Zealand Ltd in Auckland. “Nobody really wants their currency bouncing around too rapidly. That in itself, irrespective of the level, does suggest that there could be some smoothing action just to slow it down.”

  The yen rose 0.9 percent to ￥112.40 per US dollar as of 6:41am in London after appreciating to ￥112.28, the strongest level since Oct. 31, 2014. That was the day when Kuroda unexpectedly announced expanded stimulus. The yen was at ￥109.21 the day before the meeting.

  Japan’s currency climbed 0.8 percent to ￥126.95 per euro after surging 1.6 percent on Wednesday.

  HSBC Holdings PLC warned there is a growing risk that the BOJ will step in to sell yen or cut interest rates, while Morgan Stanley sees authorities limiting themselves to warning investors against pushing the exchange rate too far.

  The yen has climbed versus almost all the about 150 currencies tracked by Bloomberg this year, as evidence China’s economy is slowing and concern the creditworthiness of banks is worsening boosts demand for havens. Almost US$8 trillion has been wiped from global stocks this year, while about 30 percent of global sovereign bonds — another relatively safe asset — yield less than zero.

  The BOJ unexpectedly said on Jan. 29 it is to follow the European Central Bank by adopting negative interest rates, causing a brief slump in the yen. The central bank’s surprise easing in October 2014 has had a more sustained impact, helping drive the currency to a 13-year low of ￥125.86 on June 5 last year.

  Intervention in the currency markets would be a major event for Japan. The nation has not bought or sold currency to sway the yen’s price since a record intervention in 2011 helped stop its advance to a post-World War II record.

  A gauge of the US dollar dropped to the lowest since November last year after US Federal Reserve Chair Janet Yellen on Wednesday signaled market turmoil might deter policymakers from making multiple interest-rate increases this year.

  There is about a 30 percent probability the Fed would raise interest rates this year, according to futures data compiled by Bloomberg. The odds were more than 90 percent at the end of last year.

  The Bloomberg Dollar Spot Index, which tracks the greenback versus 10 peers, fell as much as 0.2 percent yesterday before paring declines to be little changed.

  “We don’t see Fed hikes being priced in again any time soon as it will likely take a significant and sustained improvement in market sentiment to change the market’s view on the subdued prospects for global growth,” BNP Paribas strategists, led by Steven Saywell, global head of foreign-exchange strategy, wrote in a note yesterday.

  “The [US] dollar is likely to continue to struggle” against the yen and euro, he said.

  Action from the BOJ would likely roil other nations that are already dealing with the fallout of China’s unexpected currency devaluation in August last year.

  In recent weeks, India and Kenya have called for coordinated action by monetary authorities of G20 nations to address the turbulence in foreign-exchange markets this year.

  “Markets clearly want to test further lower” on the US dollar against the yen, ANZ’s Tuck said. “One of the things holding it up is that perception of the possibility there’ll be some smoothing action from the Bank of Japan or some official support for dollar-yen.”
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