- Declining stocks, lower odds of Fed rate increase help yen
- Rapid move to 105/dollar may spur official action: Rabobank
The yen gained versus the euro, reaching its strongest level in more than three years, as a decline in stocks and increasing doubts that the Federal Reserve will tighten policy in coming months helped boost demand for the relative safety of the Japanese currency.
Traders have cut the odds of the Fed tightening policy at its July meeting to 18 percent from 55 percent a day before U.S. jobs data last week showed the smallest increase since 2010. Japan’s currency, which is often sought in times of market turmoil, touched its strongest level in a month versus the dollar as European stocks declined.
“A weak start for European equities is supporting safe-haven currencies like the yen,” said Lee Hardman, a foreign-exchange strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “The bigger picture is that the yen is deriving support from a number of sources, including weak global growth and dampened Fed rate-hike expectations.”
Hardman said that a “loss of confidence” in Japanese Prime Minister Shinzo Abe’s policies to support the economy is also “leading to an ongoing reversal of yen weakness.”
The yen appreciated 1 percent to 120.64 per euro as of 11:03 a.m. in New York, after reaching 120.33, the strongest level since April 2013. Japan’s currency gained 0.4 percent to 106.52 per dollar, having touched 106.26 earlier, the strongest since May 4.
The Stoxx Europe 600 Index fell for a second day, with more than 500 of its members down on Thursday.
With risks to financial markets growing, the yen could strengthen further, which in turn could push Japanese authorities to threaten currency-market intervention, according to Jane Foley, a senior currency strategist at Rabobank International in London.
If the currency moved “rapidly” toward 105 yen to the dollar “we are likely to get some pushback from Ministry of Finance officials,” she said.
Foley said Britain’s vote on whether to stay in the European Union, the upcoming Spanish elections and the political uncertainty in Italy and the U.S. are all risk events that are making the market a “a little bit more nervous.”