Yen Set for Best Week Since 2009 as Fed Outlook Overtakes BOJ

  • Japan's currency erased losses spurred by negative rate policy
  • Odds of Fed rate increase fading amid global market turmoil

The yen is set for its biggest weekly advance against the dollar in more than six years amid concern global economic growth is slowing as traders cut bets on whether the U.S. will raise interest rates this year, overshadowing the impact of Japan adopting negative rates.

The Japanese currency has more than recouped the tumble triggered when the Bank of Japan last week unexpectedly decided to charge lenders for some of their excess reserves held at the central bank. Prospects for higher interest rates in the U.S. are receding on speculation the Federal Reserve can’t tighten monetary policy further against a backdrop of global turmoil. The euro is heading for its biggest weekly advance since 2011 even as the European Central Bank reviews its monetary stance.

“General risk-off has led to some appreciation of the yen, but it’s also the dollar side of the story that’s playing out as a bigger driver this time,” said Shinichiro Kadota, a foreign-exchange strategist at Barclays Plc in Tokyo. “There are some questions about how effective and how much more scope for easing there is for the ECB and BOJ.”

The yen has outperformed other major currencies this week, surging 3.6 percent versus the dollar, the most since July 2009. It was little changed at 116.74 per dollar as of 6:45 a.m. in London. It was as weak as 121.69 on Jan. 29 after the BOJ policy decision. Japan’s benchmark 10-year bond yield continued to decline this week, touching a record-low 0.025 percent Friday.

U.S Payrolls

The euro fell 0.1 percent to $1.1200, heading for a 3.4 percent advance since Jan. 29. ECB policy makers will decide on March 10 whether the current program of negative interest rates and bond-buying plan goes far enough.

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 global peers, was little changed at 1,221.32. It’s fallen 2.5 percent this week, poised for the steepest decline since May 2009.

U.S. nonfarm payrolls rose 190,000 in January, slowing from 292,000 in December, according to the median economist estimate in a Bloomberg survey.

“Views are emerging that the Fed may not be able to keep raising rates -- may not even once this year -- a view which until now was seen as extreme,” said Masashi Murata, a vice president at Brown Brothers Harriman & Co. in Tokyo. “With the jobs data unlikely to be so strong, the dollar’s upside is capped against the yen.”

Fed, China

The odds of the Fed following its December rate increase with another in 2016 are less than 50 percent, futures contracts indicate. Cleveland Fed President Loretta Mester said Thursday she continues to expect the U.S. economy to warrant gradual interest-rate increases, even after financial market turbulence spurred by a darkening outlook for global growth.

China’s January foreign reserves data, scheduled for release on Sunday, are forecast to decline to $3.21 trillion from $3.33 trillion. China’s dollar stash been falling since the middle of 2014. Outflows accelerated from August 2015, as fears of yuan depreciation mounted.

“Current risk-off affecting just the yen and the euro could really become serious if U.S. jobs data are bad and Chinese foreign reserves shrink further,” said Naohiro Nomoto, an economist in New York at Bank of Tokyo-Mitsubishi UFJ Ltd. “The BOJ can’t halt risk aversion on its own without coordination.”

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