Yen Sets Worst Two-Day Drop in Four Weeks as Safety Demand Wanes

Is the Japanese Stock Recovery in Danger of Stalling?
  • Traders selling havens as stocks, oil rally after U.S. jobs
  • Futures signal almost 50% chance of U.S. rate increase in 2016

The yen held onto its biggest two-day decline in four weeks as traders weigh whether better-than-forecast jobs growth will persuade the Federal Reserve the U.S. economy is strong enough to cope with higher benchmark interest rates.

Japan’s currency dropped versus all 16 of its major peers since Thursday. Hedge funds and other large speculators cut bullish yen bets last week to the lowest in two months. The yen was also undermined after data Friday showed U.S. payrolls and wages climbed in July, prompting traders to raise the prospect of a Fed rate increase this year to almost 50 percent.

“The market is bringing up some of the forecasts for the Fed and interest rates,” said Neil Jones, head of hedge-fund sales at Mizuho Bank Ltd. in London. “Confidence in the U.S. economy is doing well for stocks, and when asset prices go up, the yen tends to weaken across the board. That’s adding to the mix as well.”

Japan’s currency was little changed at 102.44 per dollar as of 7:13 a.m. in Tokyo on Tuesday, after falling 1.2 percent over the previous two days in the steepest such slide since July 13.

A gauge of the dollar versus its major peers held onto a three-day gain.

Hedge Funds

Speculative bets the dollar will advance versus major currencies outnumbered bearish wagers by 149,418 contracts in the week through Aug. 2, the most since February, according to the Commodity Futures Trading Commission in Washington. So-called net longs on the yen against the dollar dropped to 30,914, the least since early June.

The chance of a Fed rate increase by year-end rose to 47 percent, from 37 percent before the payrolls data, futures data compiled by Bloomberg show.

The move in the yen is “sentiment driven,” said Esther Reichelt, a Frankfurt-based currency strategist at Commerzbank AG. “We see some risk-on” following the jobs report, “with the recovery in oil prices further pushing this.”

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