Yen Gains as Biggest Oil Producers' Freeze Struggles to Reassure

  • Japan's currency gains this year as haven from market turmoil
  • Rally resumes even as BOJ's negative interest rates begin

The yen gained for the first time in three days after an agreement by Saudi Arabia and Russia to freeze oil production fell short of market speculation that they’d cut output.

The haven currency advanced against all 16 of its major peers while oil erased fell as traders questioned whether the agreement to keep production at January levels would buoy prices of the commodity. Japan’s currency jumped almost 7 percent against the greenback in the past two weeks, the most since the 1998 Asian crisis.

“The yen is the foreign-exchange proxy for risk appetite and we’ve had a bit of a deterioration in risk sentiment,” John Hardy, head of foreign-exchange strategy at Saxo Bank A/S in Hellerup, Denmark, said via e-mail. “This clearly accelerated after the oil sell-off from the lack of a production cut emerging from the Russia/OPEC negotiations.”

Japan’s currency has defied predictions to weaken this year as investors sought refuge assets amid market turmoil. It’s strengthened even as the Bank of Japan carries out unprecedented stimulus policies that would typically weigh on the currency.

The yen strengthened 0.5 percent to 114.07 to the dollar as of 5 p.m. in New York, after falling 1.2 percent on Monday, the biggest slump since Jan. 29. It appreciated 0.6 percent to 127.12 per euro.

The BOJ on Tuesday started charging 0.1 percent on a portion of the excess funds that financial institutions have in accounts at the central bank. Governor Haruhiko Kuroda unveiled the policy on Jan. 29 in an effort to boost the economy by spurring lending.

The yen has gained about 4 percent since the announcement, prompting speculation that policy makers will intervene to weaken it -- either by trying to talk the exchange rate down or with currency sales or further rate cuts.

"The yen will remain sensitive to global sentiment," Mark McCormick, head of North American foreign-exchange strategy at Toronto-Dominion Bank in New York, said via e-mail. "A new 100-115 range appears likely. with BOJ intervention risks putting a floor in USD/JPY."

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