Yen Gain Makes Japan's Second-Largest Lender Warn of Rise to 105

  • Currency has strengthened versus all 31 major peers this month
  • Falling stocks, commodities driving demand for haven assets

Where Will the Yen Go This Week?

The yen’s surge this month has Japan’s second-biggest lender saying it may advance to as strong as 105 per dollar, wiping out losses that followed central bank Governor Haruhiko Kuroda’s expansion of monetary easing in October 2014.

Japan’s currency has strengthened against all of its 31 major peers in February as sliding stocks and commodities drove investors to haven assets. The yen may extend gains if the Federal Reserve decides not to raise U.S. interest rates in March and Japanese policy makers will find it difficult to intervene unless the moves are rapid, said Shinji Kureda, head of foreign-exchange trading at Sumitomo Mitsui Banking Corp. in Tokyo.

“We should guard against the dollar overdoing it and dropping to around 105 yen,” he said. “If the Fed forgoes a rate increase in March and if the BOJ can’t be really aggressive about further easing, the dollar will fall below 110 yen.”

The yen strengthened 0.6 percent to 111.40 per dollar as of 10:01 a.m. in New York on Wednesday after appreciating to 110.99 on Feb. 11, the strongest level since Oct. 31, 2014, when the Bank of Japan unexpectedly increased monetary stimulus. It last traded at 105 in September 2014. Japan’s currency appreciated 0.7 percent to 122.73 per euro.

Main Beneficiary

The yen has been the chief beneficiary of a wave of risk aversion that’s swept through financial markets this year amid concern a slowdown in China will damp global growth. Jitters about China’s exchange-rate management were revived Tuesday when the nation cut its daily yuan fixing by the most in six weeks, surprising investors who’d anticipated little movement before a Group-of-20 gathering.

The yen has also rallied as traders have wound back bets for how far the Fed will be able to raise interest rates due to the global financial turmoil. There’s an 8 percent probability of an increase at the Fed’s March 15-16 meeting, down from 51 percent odds at the end of last year, based on pricing in federal funds futures. 

“We are facing a big turnaround,” Sumitomo Mitsui’s Kureda said. “Up until now, the U.S. has been somewhat lenient towards Japan and Europe for currency weakness as a result of monetary policy. Now, it seems the U.S. itself can no longer tolerate a strong dollar and is shifting to a weaker dollar policy.”

Fed vice chairman Stanley Fischer said in a speech in Houston on Tuesday that he remained uncertain whether this year’s financial market turmoil signaled global economic woes that may slow the U.S. economy.

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