Yen Is Worst This Month, Best This Year as BOJ, Fed Moves Loom

Updated on
  • Hedge funds have piled up the biggest bullish bets since '08
  • Instability from global factors has improved: BOTM's Nomoto

The yen stands at a crossroads as investors brace for comments on monetary policy from the Bank of Japan and the Federal Reserve.

The currency’s decline this month has made it the developed world’s worst performer, even as the it retains the crown as the strongest among peers this year. While a recovery in global stocks has sapped demand for havens since the yen climbed to the strongest level since October 2014 last month, hedge funds and other speculators have piled up the biggest bullish bets since 2008. Their optimism on the yen hasn’t wavered even as futures show the odds for a Fed rate increase this year have surged to a two-month high.

“Compared to January and February, the instability from global factors has very much improved, and dollar-yen has calmed down as a result,” said Naohiro Nomoto, an associate for currency trading at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “The Fed will go ahead and raise rates around June. The market has expectations for a hike.”

The yen was at 113.71 per dollar as of 12:01 p.m. in Tokyo. While it has dropped 0.9 percent this month, it remains 5.8 percent higher over the course of this year. Japan’s currency was little changed at 126.29 per euro.

Japan’s currency closed down 1.9 percent versus the dollar on Jan. 29, its biggest daily decline since October 2014 when the BOJ surprised markets by announcing the introduction of negative deposit rates. The yen jumped 7.5 percent in February, the steepest gain since October 2008.

The premium that options traders are paying to protect against a jump in the yen over the coming week is near the lowest in a month, risk reversals show.

The odds of a Fed rate increase this year have risen to 78 percent in futures markets, from as low as 11 percent on Feb. 11. While only five of 40 economists surveyed by Bloomberg expect an imminent expansion of BOJ stimulus, almost 90 percent predict action by the end of July.