Yen Rises First Time in Four Days After Critical G-20 Comments

  • Bullish yen bets versus dollar climb to four-year high
  • Japan's currency set for best month since October 2008

The yen advanced, heading for its best month since the financial crisis in 2008, amid speculation that critical comments from the Group-of-20 finance ministers make it less likely Japan will intervene to stem the gain in its currency.

The yen climbed against all of its 16 major counterparts as global equities declined. It halted a three-day loss against the dollar after a European Union official said the weekend’s G-20 meeting cited concern Japan will devalue its surging currency. Bets from large speculators that the yen will gain versus the dollar climbed to a net 52,734 contracts, a four-year high.

“The logical conclusion following some international criticism is that the BOJ will be more sensitive to further easing going forward,” said Lee Hardman, a foreign-exchange strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “The yen is still undervalued so there’s still scope to strengthen further, mostly linked to negative external events. The risk is we have another leg toward the 105 yen, 100 yen level if the situation deteriorates significantly.”

The yen gained 0.9 percent to 112.98 per dollar as of 7:02 a.m. New York time, having weakened 0.9 percent Friday. It strengthened 1.4 percent to 122.95 per euro. Japan’s currency has appreciated 7.2 percent versus the U.S. currency in February, heading for its best month since October 2008.

G-20 Meeting

Eurogroup chief and Dutch Finance Minister Jeroen Dijsselbloem said in Shanghai on Saturday that “there was some concern that we would get into a situation of competitive devaluations” with regards to Japan.

Japanese Prime Minister Shinzo Abe told parliament Monday he is not trying to influence foreign-exchange rates, and that an excessively strong yen has been corrected under his economic reform program, dubbed Abenomics. The currency was trading around 85 per dollar when Abe took office in December 2012.

Japan said it didn’t intervene this month even as the currency strengthened amid concern this could hurt the competitiveness of exporters, data from Ministry of Finance published Monday show. The nation last intervened in the foreign-exchange market in 2011.

Even so, the finance ministry is set to instruct the BOJ to weaken the yen if it surges toward 105 per dollar, said Mansoor Mohi-uddin, a senior markets strategist in Singapore at Royal Bank of Scotland Group Plc.

Japan’s currency is poised to continue trading between 110 and 115 per dollar in the next few weeks, before depreciating toward 120 on the likelihood of three U.S. interest rate increases this year, said Mohi-uddin, who met clients and officials in Tokyo last week.

‘Downward Pressure’

“Japanese policy makers expect the Fed’s actions will remove the current downward pressure on dollar-yen,” Mohi-uddin wrote in a note. “Domestic clients also think in the longer term, the currency pair will recover on the back of the Fed’s tightening cycle.”

Investors are waiting for reports on employment and manufacturing this week for clues on the strength of the U.S. economy. Futures markets indicate 53 percent odds the Federal Reserve will raise interest rates this year after data last week showed fourth-quarter gross domestic product was unexpectedly revised higher and a measure of inflation advanced the most since October 2014.

Speculators reduced wagers on dollar strength to the least since 2014 last week. Bets on gains by the greenback versus eight major peers outweighed those on a slump by a net 116,351 contracts in the week ended Feb. 23, figures from the Commodity Futures Trading Commission showed.

“The bullish dollar view is now less of a crowded trade,” said Khoon Goh, a foreign-exchange strategist at Australia & New Zealand Banking Group Ltd. in Singapore. “If this week’s key U.S. data beat expectations, then further dollar strength can be expected.”

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