Yen Boosted by Haven Bid as Brexit, Central Bank Risks Converge

  • Fed, BOJ, BOE meetings in focus ahead of June 23 EU vote
  • Brexit could see dollar weaken to 97 yen: Banco Santander

The yen approached its strongest level since October 2014 as investors sought safer assets in a week of central bank decisions and as the likelihood of the U.K. quitting the European Union grew.

The Japanese currency, which is often bought in times of market stress, appreciated for a third day against the dollar as global stocks fell and Germany’s 10-year bond yield slid below zero for the first time. The yen strengthened against all its major peers as four polls showed that Britain could break away from the EU in the June 23 vote. The Swiss franc, another currency which tends to benefit in times of turmoil, reached its strongest level against the euro in more than three months.

A measure of swings in Group-of-Seven currencies held at a two-month high before central bank meetings in the U.S., Japan and U.K. this week.

“Even though the U.K. is in Europe, the referendum is going to have global ramifications,” said Stuart Bennett, head of Group-of-10 currency strategy in London at Banco Santander SA. Stocks were faltering and “when the risk rises people flow back to the yen as a safe haven,” he said.

Yen Gains

The yen appreciated 0.4 percent to 105.89 per dollar as of 7:02 a.m. New York time, after touching 105.55 on May 3, the strongest level since October 2014. Japan’s currency gained for a sixth day versus the euro, advancing 0.9 percent to 118.86 and reaching the strongest since January 2013. Europe’s shared currency dropped 0.6 percent to $1.1224.

The Swiss franc appreciated 0.5 percent to 1.08378 to the euro, having earlier reached 1.08304, its strongest since March 3.

A JPMorgan Chase & Co index of currency volatility for seven major currencies was at 12.04 percent, the highest on a closing-price basis since April 7. The Stoxx Europe 600 Index of shares dropped for a fifth day, sliding 1.3 percent.

Abrupt changes in foreign-exchange levels are not desirable, Japan’s Finance Minister Taro Aso said on Tuesday. The yen has strengthened 16 percent from a 13-year low of 125.86 per dollar set in June last year. Its surge accelerated after the Bank of Japan’s Jan. 29 decision to introduce a negative-rate policy fanned volatility.

BOJ Action

“The BOJ can’t allow the dollar-yen to keep slipping,” Santander’s Bennett said. “If the U.K. votes to leave the EU, dollar-yen could go to 97 in the blink of an eye” which could trigger some action from the BOJ, he said. That level hasn’t been seen since October 2013.

Just 11 of 40 economists surveyed by Bloomberg predict the BOJ will ease monetary policy when its meets June 15-16. While the Federal Reserve isn’t expected to raise rates on June 15, futures contracts show a 47 percent likelihood of an increase by year-end, compared with 76 percent at the start of this month.

“The markets are also wary that the Fed, Bank of Japan and Bank of England are holding their monetary policy meetings this week,” Philip Wee, senior currency economist at DBS Group Holdings Ltd. in Singapore, wrote in a note. “Most will be interested to see how much Brexit risks have dampened Fed Chair Janet Yellen’s optimism” and there could be surprises from the BOJ.

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