Sun, Jul 31, 2022 page10

• Japanese yen advances to a level that threatens this year’s big forex short

  • Bloomberg
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  The resurgent yen has hit a level that has traders wondering if a technical rebound might turn into a rally that derails the forex world’s favorite short.

  The Japanese currency climbed more than 1 percent on Friday, rising for a third day in the wake of the US Federal Reserve meeting, as reduced expectations for rate hikes caused hedge funds to cover short bets from one of the biggest global macro trades of the year.

  The cost to buy one US dollar with the yen has now dropped close to 5 percent from a high in the middle of this month to below its 50-day moving average — a key support level watched by traders currently around ￥134.27.

  

  Japanese ￥10,000 and US$100 banknotes are displayed in Tokyo on April 13.

  Photo: AFP

  That paves the way for a decline toward ￥130, putting calls that the dollar-yen pair was destined to hit ￥140 firmly in the rearview mirror.

  “The 50-day moving average has served as a support in the dollar-yen’s rally from March and is quite significant,” said Akira Moroga, manager of currency products at Aozora Bank in Tokyo.

  “Since a clear break below the 50-day moving average puts the June low into sight, players are likely to be cautious,” Moroga said.

  On Friday, end-of-month buy orders for the US dollar were competing with fast-money funds still liquidating their long greenback positions, said Asia-based currency traders who asked not to be named as they are not authorized to discuss client activity publicly.

  The yen was 0.2 percent higher at ￥133.99 per dollar in the US session.

  Expectations for a less aggressive Fed have led to a rally in US Treasuries, narrowing the yield gap which had opened up between Japan and the US that helped push the yen to a 24-year low.

  That has weakened the argument behind sell-the-yen strategies and eased pressure on the Bank of Japan, which reaffirmed its commitment to rock-bottom interest rates last week.

  “With US yields falling back to 2.6 percent from a high around 3.5 percent, momentum is lost for dollar-yen to test 140,” Moroga said. “The environment has changed from before when dollar-yen was rallying; the current US 10-year yield does not back the pair at 140.”

  Still, the yen is not out of the woods yet, with some market participants saying it is too early to call an end to declines with the path for interest rates very much data-dependent.

  “ISM [industrial, scientific and medical], payroll and inflation data are coming and there will be a lot of opportunities for official remarks ahead of Jackson Hole,” said Teppei Ino, head of global markets research at MUFG Bank Ltd, referring to the Fed’s annual symposium next month.

  “If the tone is given at Jackson Hole that rate hikes are coming close to an end, that will be a deciding blow, but we still can’t bet on it at this moment,” Ino said.

  TD Securities recommended buying the dollar-yen pair and targeting an advance to 138 over the next two weeks, senior foreign-exchange strategist Mazen Issa wrote in a note.

  On Friday, the US dollar index, a measure of its value against six major currencies, lost 0.49 percent to 105.83.

  The New Taiwan dollar fizzled against the greenback on Friday, losing NT$0.010 to close at NT$29.938, down 0.07 percent from NT$29.916 a week earlier.

  Additional reporting by CNA, with staff writer
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