Yen's Surge to Highest Since BOJ's 2014 Bazooka Unnerves Traders

  • Japan's currency heads for biggest weekly gain in a month
  • Japan authorities seen keeping an eye on 110 yen-level: Daiwa

Japanese Stocks Bear the Weight of a Falling Yen

The yen trimmed its advance toward the highest level since October 2014 amid speculation the Bank of Japan may intervene to arrest gains that threaten to undermine almost three years of monetary stimulus.

Japan’s currency is headed for its biggest weekly advance against the dollar in more than a month, after the Federal Reserve pared back expectations for interest-rate increases this year. The yen reached 110.67 Thursday, the strongest level since Oct. 31, 2014 -- the day the BOJ boosted stimulus -- before retreating against the greenback. The sudden moves fueled speculation the monetary authority was checking exchange rates with banks, which some traders see as a prelude to possible intervention.

“In the near term, the Ministry of Finance -– responsible for currency policy in Japan -– will be increasingly concerned about the strength of the yen,” said Mansoor Mohi-uddin, Singapore-based senior markets strategist at Royal Bank of Scotland Group Plc. “Any further sharp declines in the dollar into a lower 105-to-110 range now will substantially increase the risk of the authorities intervening to counter the rise of the yen.”

The yen was 0.2 percent stronger at 111.17 per dollar at 7 a.m. in London, after surging as much as 0.5 percent to 110.82 Friday. The Japanese currency has appreciated 2.4 percent this week, heading for its biggest gain since the period ended Feb. 12.

BOJ Policy

The BOJ’s Jan. 29 surprise decision to adopt negative interest rates has failed to rein in the currency’s rally from about 121 per dollar on that day. With the central bank far from its 2 percent inflation goal and economic growth stalling, it is set to ease monetary policy further when it next meets on April 28, Mohi-uddin said.

QuickTake Abenomics

BOJ Governor Haruhiko Kuroda indicated this week that the deposit rate could go as low as minus 0.5 percent, from minus 0.1 percent.

That didn’t deter JPMorgan Chase & Co. from raising its forecast for the yen Friday. Low interest rates elsewhere and expectations of further easing by other central banks are set to limit the impact of monetary stimulus on the currency, the bank’s Tokyo-based analysts, Junya Tanase and Maoko Ishikawa, wrote in a report. They now expect the yen to appreciate to 103 per dollar at the end of the year, compared with a previous estimate of 110.

Intervention Hurdle

The Group of 20 also appeared uncomfortable about possible foreign-exchange intervention by Japan at their meeting in Shanghai last month and the nation’s concerns about a stronger currency weren’t shared with other members, according to the report. The G-20 reaffirmed that they will refrain from competitive devaluations, and agreed to consult closely on currencies.

“The hurdle to conduct yen-selling intervention is even higher than thought before,” the JPMorgan analysts wrote.

Japanese authorities will probably favor “verbal intervention,” even though its effectiveness has waned, said Yuji Kameoka, chief currency strategist at Daiwa Securities Co. in Tokyo. 

“Japanese authorities are thought to be keeping an eye on the 110 yen-per-dollar level,” Kameoka said. “There’s a very high hurdle to actual intervention because of the agreement reached at the G-20 meeting.”

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