Yen Drives Foreign-Exchange Swap Gains as Total Volume Falls

Currency Market Averages $5.1 Trillion Daily Volume
  • Swaps transactions rose to $2.4 trillion in 2016: BIS survey
  • Overall trading at $5.1 trillion, first drop since 2001

The Bank of Japan continues to set much of the tone for shifts in the world’s largest, most liquid market -- foreign exchange.

Increased trading of yen derivatives helped drive foreign-exchange swaps turnover to a record $2.4 trillion a day in April, even as total transactions fell for the first time since 2001, the Bank for International Settlements said. That comes three years after the BOJ’s launch of unprecedented easing in April 2013 helped drive trading volume to the most ever.

Swaps volume rose 6 percent from April 2013, while spot trading dropped 19 percent to $1.7 trillion, according to a survey of currency traders the so-called bank for central banks has run every three years since 1986. Overall transactions fell to $5.1 trillion from $5.4 trillion.

From Pacific Investment Management Co.’s largest international bond fund to the Chinese government, investors have been lending dollars for yen to take advantage of the best rates since 2008, following the BOJ’s introduction of a negative deposit rate in January of this year. Japanese investors have also been forced to use the same kind of instruments to hedge foreign bond purchases as they fled record-low yields at home.

It’s a reversal from three years ago and the introduction of BOJ Governor Haruhiko Kuroda’s quantitative-and-qualitative-easing program, which helped pushed the yen to a 13-year low of 125.86 per dollar in June of last year. Now the yen reigns as the best performing major currency over the past 12 months, surging 17 percent against the greenback.

Benchmark 10-year Japanese government bonds yielded minus 0.055 percent at 9:47 a.m. in Tokyo on Friday, and reached a record low of minus 0.3 percent in July.

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