Yen Jumps to Highest Since '14 as Recession Risk Spurs Haven Bid

  • Volatility jumps to 2 1/2-year high amid thin liquidity
  • Stocks, bond yields, oil fall before Yellen speaks Feb. 10

A Strong Yen Is Unacceptable, Here's Why

The yen strengthened to a more than one-year high Monday, extending gains after its best week since 2009, as demand for haven assets benefited from a growing unease about the resilience of global growth.

Japan’s currency, which strengthens in times of turmoil thanks to Japan’s current-account surplus, rose against all 16 of its major peers in New York. Exchange-rate volatility climbed to its highest since June 2013 as European equities tumbled to their lowest since October 2014 and the U.S. Standard & Poor’s 500 Index slumped.

Investors lost their appetite for higher-yielding assets amid doubts about corporate creditworthiness, concern that the global economy is slowing and slowing market-based measures of inflation. Focus will turn to Federal Reserve Chair Janet Yellen’s Congressional testimony in Washington this week for clues on how policy makers view that backdrop, and the likelihood of a near-term increase in U.S. interest rates.

“Uncertainty is on the rise and the door still seems cracked to the Fed this year so I think markets are adjusting to that reality,” said Joe Manimbo, an analyst with Western Union Business Solutions, a unit of Western Union Co., in Washington. “Japan has a stable banking system and runs a current account surplus so that certainly makes it and the yen one of the favorite destinations when the global economic glass appears half empty.”

The yen advanced 0.3 percent to 115.51 per dollar as of 8:16 a.m. in Tokyo Tuesday, after touching 115.18 in New York, the highest since November 2014. It gained 0.3 percent to 129.35 per euro. The Bloomberg Dollar Spot Index, which tracks the greenback versus 10 peers, lost 0.2 percent Monday.

Global currency volatility rose to 11.77 percent, according to a JPMorgan Chase & Co. gauge Monday.

Yen Rally

The yen is on a tear after gaining 3.5 percent last week, its biggest advance since July 2009. Policy-rate cuts from the Bank of Japan have failed to curb its rally, suggesting risk aversion is outweighing monetary-policy divergence among foreign-exchange traders.

Signs of growing stress in the bond market sent the cost of insuring U.S. corporate debt to the highest since 2012 on Monday, credit-default swap indexes show. Stocks fell, with the Nasdaq Composite Index falling to its lowest level since October 2014. Oil declined a third day.

“We’re seeing a lot of risk aversion and the yen continues to be a safe-haven play,” said Sireen Harajli, a currency strategist at Mizuho Bank Ltd. in New York. “It all comes back to what will that mean for central bank policy, including the Fed, where I think there’s some uncertainty regarding the path of monetary policy tightening.” Harajli expects further yen strength.

The dollar rose with Treasuries before Fed Chair Yellen addresses Congress on Feb. 10 and 11. Traders have reduced bets on a U.S. rate boost by year-end.

Yellen’s comments will be “absolutely pivotal,” said Jeremy Stretch, head of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London. It will help shape the “market’s interpretation of where the Fed goes from here.”

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