Yen Surges as BOJ Looms, Traders Cite Robots, Retweets, Misorder

  • Dollar-yen volatility at highest since 2008 financial crisis
  • ‘No guarantee the yen will weaken’ if BOJ eases: Ueda Harlow

The yen surged amid traders’ expectations of heightened volatility with the Bank of Japan due to hand down its most anticipated monetary policy decision since Haruhiko Kuroda’s first as governor in April 2013.

Japan’s currency rose as much as 1.8 percent to 103.41 per dollar before trading 1.3 percent stronger at 103.95 as of 11:05 a.m. in Tokyo. It gained 1.3 percent to 115.09 per euro. Algorithmic platforms were partly blamed for the moves, according to traders who asked not to be identified because they aren’t authorized to speak publicly. Overnight implied volatility for the dollar-yen -- the world’s second-most traded currency pair -- climbed 40 percentage points on Thursday to 53 percent, the highest level since 2008.

“There was no visible news, but markets are nervous ahead of the BOJ meeting,” said Yuji Saito, Tokyo-based head of the foreign-exchange department at Credit Agricole SA.

Keyword flagging in platforms picked up earlier stories reposted at the opening of trade in Asia, the unidentified traders said. Combined with thin liquidity, that was causing excessive volatility before the BOJ decision.

There was also some speculation that the price move was triggered by misplaced orders, according to Hiroshi Yanagisawa, a dealer at FX Prime by GMO Corp. in Tokyo.

“I have absolutely no idea what happened,” Yanagisawa said. “But the way prices moved suggests they may be linked to misorders.”

Prime Minister Shinzo Abe on Wednesday flagged a 28 trillion yen ($267 billion) fiscal stimulus package to be approved by Cabinet next week, boosting pressure on the BOJ to help revive output and inflation. Four in five economists predict additional stimulus Friday -- with an increase in purchases of exchange-traded funds the most likely option, followed by a deeper cut in the negative deposit rate.

To see Bloomberg’s BOJ Decision-Day Guide, click here

Data on Friday showing weakness in Japan’s consumer prices and household spending added to pressure on the BOJ to expand stimulus as the bank has repeatedly pushed back the expected timing of reaching its 2 percent inflation target.

Even if the BOJ adds stimulus, the yen’s decline may be limited by haven appetite and month-end flows as European banks will face the outcome of their stress tests later Friday, according to Naoto Ono, an analyst in Tokyo at Ueda Harlow Ltd., which provides margin-trading services. The European Banking Authority’s stress-test results on the 51 largest euro-area banks are due at 9 p.m. London time.

“There is no guarantee the yen will weaken even if the BOJ eases,” Ono wrote in a note to clients. “If the European bank stress test results show more banks failing to meet requirements, that could heighten concerns about credit contraction.”

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