Yen Surges Most Since Brexit as Traders Reduce Stimulus Bets

Yen Jumps Most Since Brexit: Will BOJ Surprise Markets?
  • Investors grow more cautious on extent of BOJ easing
  • Risk aversion also boosts yen versus major currencies

The yen surged the most since Britain voted to leave the European Union as traders scaled back expectations for further monetary and fiscal stimulus before Bank of Japan policy makers meet this week.

Japan’s currency rose against all 16 major counterparts after Finance Minister Taro Aso said the government has yet to decide on the size of a fiscal-stimulus package. The Nikkei newspaper reported that the plan would include 6 trillion yen ($58 billion) of new spending, though only about 2 trillion yen of that would be in a supplementary budget to be passed this year.

"There’s a lot of uncertainty around what kind of stimulus the Bank of Japan will be able to deliver," said Mazen Issa, senior foreign-exchange strategist at Toronto-Dominion Bank in New York. "They are more inclined to disappoint."

The yen strengthened 1.1 percent to 104.66 per dollar as of 5 p.m. in New York, posting its biggest gain since June 24. That’s the day the U.K. announced it had voted to exit the EU, sending investors scrambling for havens and pushing the Japanese currency to a 2 1/2-year high of 99.02 per dollar.

The yen is still down about 1.4 percent this month after a build-up in speculation that Japan’s authorities would expand monetary and fiscal stimulus. Traders have speculated in recent months that Japanese policy makers might engage helicopter money, where the government would sell non-marketable debt to the central bank that would be injected into the economy. The central bank has ruled out the strategy.

Decisions Loom

While futures prices suggest the Federal Reserve will keep borrowing costs on hold on Wednesday, traders will scour its policy statement for any sign officials plan to raise rates later in the year.

Most economists still predict the Bank of Japan will expand easing come Friday. A copy of the Japanese government’s draft stimulus plan obtained by Bloomberg called for continued cooperation with the central bank yet contained no details on the size or economic effects of the package.

“The market is cautious due to the risk of policy disappointment,” said Neil Jones, head of hedge-fund sales at Mizuho Bank Ltd. in London. “Expectations for a Fed hike and further Bank of Japan stimulus run high. But the BOJ may do nothing and the Fed may take on a more dovish angle.”

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