Yen Halts 2-Day Drop as Bullish Bets Reach 2012 High Before BOJ

Updated on
  • Central bank unlikely to add stimulus Jan. 29: Credit Agricole
  • Yen advances against major counterparts since 2016 began

The yen advanced, halting a two-day decline, after Bank of Japan Governor Haruhiko Kuroda showed little appetite for an immediate expansion of stimulus as the central bank prepares to set policy this week.

Kuroda said in an interview on Jan. 22 in Davos, Switzerland, that “we don’t think the current market situation has been affecting corporate behavior unduly.” Japan’s currency has gained versus all its 16 major counterparts since the start of the year as a China-led stock selloff and a tumble in oil prices spurred demand for haven assets.

Hedge funds and other large speculators raised net bullish yen positions to the highest in almost four years last week. The BOJ is scheduled to meet Jan. 28-29 and announce its monetary-policy decision on Jan. 29.

“I think it is too early for the next round of BOJ stimulus,” said Valentin Marinov, head of Group-of-10 currency strategist at Credit Agricole SA’s corporate and investment banking unit in London. “While Kuroda could send a signal that more easing will be coming before long, that may not be enough to trigger a sustained bounce in risk and a selloff in the Japanese yen. We remain cautious on risk sentiment this week.”

The yen strengthened 0.3 percent to 118.39 per dollar as of 6:47 a.m. New York time, extending its gain this year to 1.5 percent. It appreciated 0.1 percent to 128.11 per euro. The currency advanced most against the Canadian dollar, by 0.9 percent.

Oil View

Japan’s currency has gained versus all its 16 major counterparts since the start of the year as a China-led stock selloff and a tumble in oil prices spurred demand for haven assets. Kuroda has resisted a further expansion of the BOJ’s asset-purchase program since 2014, arguing that repeated reductions in consumer-price forecasts are largely the result of falling oil costs, which are outside of the bank’s influence.

Hedge funds and other large speculators increased net futures positions that profit from yen gains versus the dollar to 37,653 contracts as of Jan. 19, the most since February 2012, according to Commodity Futures Trading Commission data.

Equities Rally

Japan’s currency dropped last week against its 16 major peers amid speculation that the recent sell-off in stocks and the strengthening yen will force the BOJ’s hand. Declines were also fueled by a rally in equities following signals from the European Central Bank that it would consider expanding monetary stimulus in March.

Considering Kuroda’s Davos comments “it did not sound like the BOJ was ready to ramp up its accommodative stance –- the governor noted that while the BOJ is monitoring the situation, the positive corporate outlook has not changed and inflation expectations remain anchored,” Brian Daingerfield, a currency strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit in Stamford, Connecticut, wrote in a Jan. 23 report.

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