Yen Set for Best Quarter in Three Years on Surge in Haven Demand

  • Currency ready to end losing streak of previous four quarters
  • Dollar gauge poised to return to quarterly gain on Fed outlook

The yen was set for its biggest quarterly gain against the dollar in three years as market turmoil fueled demand for safer assets, overriding prospects that U.S. interest rates will increase by December.

A gauge of the yen versus its developed-nation peers has risen 6.6 percent this quarter as China’s abrupt devaluation of the yuan last month stoked speculation of a slowdown in the world’s second-largest economy. Australia’s dollar was the biggest loser as its economy grapples with both the end of a mining investment boom and the deceleration in China, the nation’s biggest trading partner.

“The yen could test 119 per dollar if stocks continue to plunge,” said Masato Yanagiya, head of foreign-exchange and money trading at Sumitomo Mitsui Banking Corp. in New York. “Stocks appear to be undergoing a transition and are vulnerable, weighing on risk sentiment.

The yen has risen 2.2 percent this quarter to 119.90 per dollar as of 6:55 a.m. in London, the most since it gained 2.4 percent during the third quarter of 2012. It weakened the previous four periods.

Daily Direction

Japan’s currency slipped 0.1 percent versus the dollar on Wednesday, the most among developed-market peers, as Asian stocks pared a quarterly loss after shares climbed in New York. A China-led rout has wiped off about $10 trillion in value from global equities.

Australia’s dollar rose 0.4 percent advance to 70.14 U.S. cents Wednesday, trimming its quarterly decline to 9 percent -- still its worst performance since the period ended June 2013.

The Bloomberg Dollar Spot Index, which measures the greenback’s performance against a basket of major peers, was set to complete a 2.7 percent quarterly advance. The gauge was little changed on the day at 1,212.80.

The dollar remains underpinned as officials from the Federal Reserve, including Chair Janet Yellen, have said in recent days they expect interest rates to rise this year for the first time since 2006.

Futures signal about 40 percent odds of an increase from near zero rates by year-end. The calculation is based on the assumption that the effective fed funds rate will average 0.375 percent after the first increase.

“We still think the flows, positioning, policy stance, et cetera, all argue for dollar-yen higher, but these factors are all taking a back seat and swings in risk appetite are dominating everything,” said Adam Cole, London-based head of global foreign-exchange strategy at Royal Bank of Canada. “Yen has reverted to its traditional status as the markets’ choice safe-haven currency.”

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