Yen Set for Longest Gain in Month Amid Concern Over Brexit, Fed

  • Caution over U.S. payrolls and support for Brexit boost yen
  • Fed funds futures point to interest rate increase in July

Why Is the Yen Strengthening So Rapidly?

The yen headed for its first three-day rally in a month as concern the global economy isn’t strong enough to shake off shocks such as the potential U.K. exit from the European Union and U.S. policy tightening spurred demand for the currency as a haven.

Japan’s currency advanced against all 10 of its developed-market peers, while the pound held a two-day loss of more than 1.5 percent, after a poll signaled an increase in support for so-called Brexit three weeks before the June 23 referendum. A gauge of the dollar remained lower before a report on Friday that analysts forecast will show the U.S. economy added fewer than 200,000 jobs for a second straight month.

The yen rose 0.4 percent to 109.13 per dollar as of 7 a.m. in London from Wednesday, when it jumped 1.1 percent in the biggest gain since April 29. The yen extended gains as the Nikkei 225 Stock Average fell for a second day, tumbling 2.3 percent. Japan’s currency advanced 0.3 percent to 122.24 per euro.

“The yen seems to be driven by moves by funds linking stock futures with dollar-yen,” said Hiroshi Yanagisawa, a dealer at FX Prime by Gmo Corp. in Tokyo. “Uncertainty about the U.K.’s poll and the risk that more supporters for an exit could undermine the U.S. rate hike path are also supporting the yen against the dollar.”

The Bloomberg Dollar Spot Index, which tracks the currency against 10 peers, was little changed from Wednesday, when it fell 0.4 percent, its biggest loss since April 29. The pound bought $1.4435 after falling 0.5 percent Wednesday to $1.4416 and slumping 1.1 percent the prior day.

The yen had risen the most in more than a month Wednesday after Japan’s Prime Minister Shinzo Abe said that a sales-tax increase will be postponed until 2019 from April 2017 and vowed to take “bold” economic steps in the autumn, without giving specifics.

Japan’s currency is unlikely to appreciate sharply from current levels as the Federal Reserve looks set to raise rates in the coming months, said Masato Yanagiya, head of currency and money trading at Sumitomo Mitsui Banking Corp. in New York.

The odds of a rate shift in June implied by federal funds futures contracts were 22 percent, compared with 12 percent at the end of April but down from 30 percent on May 30. The probability of a move by July stands at 53 percent.

“What we need to think from here is whether the Fed raises in June or July, as that will change the currency’s path,” Yanagiya said. However, “another factor is Brexit. If markets see the exit risks heightening, risk aversion incentives will strengthen and leave more scope for the yen to rise.”

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