Yen Near Strongest in 19 Months Amid Central Bank, Brexit Risks

  • Currency’s haven status in focus before policy meetings
  • Aussie, kiwi reverse earlier declines as Chinese stocks gain

The yen is near its strongest level against the dollar since October 2014 on haven demand before central bank meetings this week in the U.S., Japan and U.K., with a British referendum on whether to leave the European Union looming.

The Japanese currency has advanced against all its 16 major peers this month as anxiety over the so-called Brexit referendum prompted investors to seek the safest assets. While most economists predict the Federal Reserve, the Bank of Japan and the Bank of England will refrain from policy changes, investors will closely watch the communications from the authorities after the meetings for clues on future direction.

“The yen tends to outperform the dollar in periods of heightened risk aversion,” said Elias Haddad, a currency strategist at Commonwealth Bank of Australia in Sydney. “The dollar-yen crosses will remain heavy because of growing concerns that Britain will vote to leave the EU.”

The yen was little changed at 106.19 per dollar as of 6:47 a.m. in London, after touching 105.55 on May 3, the strongest level since October 2014. Japan’s currency was at 118.98 versus the euro. It reached 118.52 on Tuesday, the most since January 2013. The pound traded at $1.4145 from $1.4114 on Tuesday, when it touched a two-month low.

‘Leave’ Momentum

Five polls in two days have shown “Leave” ahead, by between 1 and 7 points, while one had 46 percent supporting “Remain” and 45 percent for “Leave.”

“There’s certainly no dearth of opinion polls showing a lean towards a Brexit, and the outcome is on a razor’s edge,” Stephen Innes, senior trader at Oanda Asia Pacific Pte, wrote in an e-mailed note. “It’s difficult to see USD/JPY picking up any significant support from the U.K. remaining in Europe, whereas Brexit should lead to a massive sell-off.”

The Fed will be the first to decide policy, with an announcement Wednesday, followed by the BOJ and then BOE Thursday. Futures signal no chance the U.S. benchmark rate will rise this time, and even a 2 percent probability it will fall. The odds of tightening by year-end is 49 percent, down from 76 percent at the start of this month.

About a quarter of analysts surveyed by Bloomberg expect the BOJ will expand stimulus this week, while more than half predict action at the meeting in July.

If the Bank of Japan announces more easing measures tomorrow, the yen could briefly spike up towards its 40-day moving average near 108.70, according to Commonwealth Bank’s Haddad.

The Australian and New Zealand dollars reversed earlier losses as the Shanghai Composite Index of stocks rose 1.5 percent, after earlier sliding as much as 1.1 percent. The two South Pacific nations count China as their biggest trading partner. The Aussie added 0.2 percent to 73.70 U.S. cents, while the kiwi advanced 0.4 percent to 70.21 U.S. cents.

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