The yen advanced, extending its biggest weekly gain versus the dollar in five years, after Japanese Finance Minister Taro Aso said he had no immediate intention to weaken the currency.
Japan’s currency climbed to the strongest in more than two months versus the greenback as the nation’s stocks fell and a gauge of volatility jumped to the most since 2011. The dollar headed for a weekly drop versus the euro before U.S. jobs data. Australia’s dollar declined before Chinese data tomorrow that economists said will show growth in imports slowed, dimming the demand outlook for commodities.
“The comments from Abe weren’t satisfactory for the market,” said Roberto Mialich, a senior currency strategist at UniCredit SpA (UCG) in Milan. “That’s reinforcing the move higher in the yen. All markets have been heavily short the yen and so people have been caught wrong-footed which is forcing heavy buying. As long as the stock market remains under pressure the yen can remain firm.” A short position is a bet an asset will decline.
The yen advanced 1.6 percent to 95.46 per dollar at 7:05 a.m. New York time, set for a 5.1 percent advance this week, the biggest jump since October 2008. Japan’s currency appreciated 1.5 percent to 126.56 per euro after reaching 126.28, the strongest since April 16. The dollar was little changed at $1.3253 per euro and headed for a 2 percent decline this week.
The yen touched 95.29 per dollar today, the strongest since April 4. Japan hasn’t sold its currency to weaken it since 2011, when it reached a postwar record of 75.35. A stronger currency hurts the overseas competitiveness of domestic companies.
“We are carefully watching but we don’t have any immediate intention of taking any action, such as intervention,” Aso told reporters in Tokyo.
The Bank of Japan’s stimulus plan announced in April involves monthly purchases of more than 7 trillion yen in Japanese government bonds. The yen slumped more than 20 percent against the dollar from the middle of November through May amid expectations of expanded monetary and fiscal stimulus under Prime Minister Shinzo Abe.
Japan’s shares tumbled and the yen rallied yesterday after Abe said a legislative campaign to loosen rules on businesses, the “third arrow” of his revival plan, won’t begin for months.
The Government Pension Investment Fund said today it will cut its allocation to Japanese bonds to 60 percent from 67 percent. Japan’s Ministry of Health, Labour and Welfare said the GPIF, the world’s biggest manager of retirement savings, will increase its allocation of domestic stocks to 12 percent from 11 percent, according to a statement from the health ministry.
The fund will increase its allocation of foreign stocks to 12 percent from 9 percent and for foreign bonds to 11 percent from 8 percent.
Futures traders increased bets the yen will weaken against the dollar to the most since July 2007. The difference in the number of wagers by hedge funds and other large speculators on a decline in Japan’s currency compared with those on a gain, known as net shorts, was 99,769 contracts on May 28, versus 95,186 a week earlier, figures from the Washington-based Commodity Futures Trading Commission show.
“We’re seeing large unwinding of carry trades and violent moves in dollar-yen,” said Kikuko Takeda, a senior analyst at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “There’s been both strong and weak U.S. data so it’s hard to take a one-sided view of the U.S. economy or Fed policy.” A carry trade involves borrowing in low-interest-rate currencies to buy higher-yielding assets.
Deutsche Bank AG’s G10 FX Carry Basket index fell 2.8 percent this week, erasing this year’s advance.
The yen has surged 4.7 percent in the past month, the most among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro advanced 2.2 percent and the dollar climbed 0.7 percent.
The U.S. Labor Department will say today the economy added 163,000 jobs in May, while the jobless rate held at 7.5 percent, according to median forecasts in Bloomberg News surveys of economists.
Fed policy makers have said they’ll continue their $85 billion-a-month pace of asset purchases until the labor outlook improves “substantially.”
“A positive surprise on jobs, as we look for, would be dollar positive in fueling expectations for a deceleration in Fed easing,” Christin Tuxen, a senior analyst at Danske Bank A/S (DANSKE) in Copenhagen wrote in a note to clients. “An upbeat payrolls number should have the potential to reverse part of yesterday’s dollar slide.”
JPMorgan Chase & Co.’s Group of Seven Volatility Index, based on currency option premiums, rose to 10.62 percent, the highest level since June 2012. One-month implied volatility on the yen versus the dollar surged to 16.08 percent, the most since March 2011.
Australia’s dollar fell versus all but one of its 16 major peers.
The Aussie slid 1 percent to 95.03 U.S. cents after falling to 94.35 yesterday, the weakest since Oct. 4, 2011.