Yen in Biggest 2-Week Gain Since 1998 Even as Dollar Rebounds

  • Strength is driven by haven demand as market turmoil continues
  • Bank of Japan may see 110 per dollar as `line in sand': CIBC

The yen headed for its biggest two-week gain versus the dollar since 1998 during the Asian financial crisis, intensifying speculation Japanese authorities could intervene to weaken it.

Japan’s currency has strengthened against all of its 31 major peers this month as a slump in stocks around the world spurred demand for haven assets. Finance Minister Taro Aso and Bank of Japan Governor Haruhiko Kuroda both said Friday the authorities are watching moves in exchange rates. The dollar rebounded against the euro as Federal Reserve Chair Janet Yellen signaled that the impact of the swings on financial markets is unlikely to prompt the central bank to reverse course on policy.

“The yen is all about risk-uncertainty, which could encourage Japanese investors to pull out of overseas assets and retreat to the safety of home,” said Jeremy Stretch, head of foreign-exchange strategy at Canadian Imperial Bank of Commerce. “Of late, it’s been a case of capital preservation rather than return. The authorities have been making plenty of noises about this unwanted strength and I see 110 as a potential line in the sand for intervention.”

Yen’s Advance

The yen weakened 0.2 percent to 112.65 per dollar as of 7:20 a.m. in New York, set for a two-week appreciation of 7 percent. It surged to 110.99 per dollar Thursday, the strongest level since October 2014. Japan’s currency strengthened 0.2 percent to 127.04 per euro.

Investors anticipate even bigger price swings in the yen, with a gauge of one-month implied volatility in the dollar-yen exchange rate climbing to the highest since the middle of 2013.

The authorities “will continue to watch FX markets with a sense of urgency,” Aso told reporters in Tokyo. Chief Cabinet Secretary Yoshihide Suga also said Friday the government will take action if necessary because abrupt market moves aren’t desirable. Exchange rates should reflect economic fundamentals and risk-off moves have spread excessively, Kuroda said in parliament.

‘Rate-Check’

The BOJ made “rate-check” calls to some banks with implicit questions on whether they planned to buy more yen, Sassan Ghahramani, head of SGH Macro Advisors, wrote in a note Thursday. Checking rates is sometimes intended to send a signal to markets that intervention may be on the way.

Aso declined to comment Friday on whether authorities have already intervened. Japan hadn’t bought or sold currency to sway the yen’s price since a record intervention in 2011 helped stop its advance after reaching a post-World War II record.

“Given the current global backdrop and Japan’s large current-account surplus, we expect yen to re-strengthen shortly after any Japanese intervention to weaken the yen,” said Joseph Capurso, a currency strategist at Commonwealth Bank of Australia in Sydney.

Dollar Gains

The greenback recouped some lost ground before a report on Friday that economists forecast will show retail sales rebounded in January from the previous month. Sales rose 0.1 percent last month after contracting 0.1 percent in December, according to a Bloomberg survey of analysts.

The dollar gained 0.4 percent to $1.1274 per euro, erasing its 0.3 percent loss on Thursday. The Bloomberg Dollar Spot Index, which tracks the currency against major peers, rose 0.2 percent, paring its weekly decline to 0.8 percent.

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