Yen Advances for Second Day as Traders Rule Out Fed Move in June

  • Traders see U.S. central bank on hold until at least December
  • Yen is also underpinned by haven-demand before U.K.’s EU vote

Are There Enough Uncertainties to Push Back Fed Hikes?

The yen advanced for a second day against the dollar as traders ruled out the possibility that the Federal Reserve will raise interest rates on June 15, a day before the Bank of Japan also decides on policy.

Japan’s currency approached the strongest level in a month, pushed also by a government report that showed the economy grew faster last quarter than initially estimated. A gauge of the dollar dropped to the lowest in a month as the odds of a U.S. rate increase by year-end dropped to 59 percent from 74 percent at the start of last week, as reflected in futures. The chances were zero for a June move.

The change in outlook coincided with lower-than-forecast U.S. jobs data and a speech by Fed Chair Janet Yellen that some in the market judged as dovish. The yen also drew support from haven demand in the run-up to Britain’s vote on its European Union membership on June. 23.

“The yen is catching up after the weak U.S. jobs data and Yellen’s speech,” said Ulrich Leuchtmann, head of currency strategy at Commerzbank AG. “The only glimpse of volatility would now come from the Britain’s EU referendum, and that could provide support for the Japanese currency. Longer-term, the Bank of Japan’s expansionary monetary policy implies a significantly weaker yen.”

The yen appreciated 0.3 percent to 107.07 per dollar as of 12:22 p.m. in London after advancing to 106.38 on Monday, the strongest since May 4. Japan’s currency was little changed at 121.83 per euro.

‘Brexit’ Concern

The yen, seen as a haven currency due to its current-account surplus, climbed this month versus the dollar and sterling. The prospect of disruptions to currency markets in connection with a so-called Brexit was underscored earlier in June as polls putting the ‘Leave’ camp in the lead triggered a slump in the pound.

“It seems that investors’ appetite for risk has been reduced dramatically ahead of EU referendum,” said Valentin Marinov, head of G-10 foreign-exchange research. “Most clients suggest that the visibility in the markets is very poor at the moment and there are no clear, easily discernible trends at present. You could argue that the lingering market uneasiness is supportive of the yen.”

A Bloomberg composite poll put the ‘Leave’ camp at 42 percent compared with 43 percent for ‘Remain,’ with 15 percent undecided. Probability calculations based on the polls suggest an exit remains unlikely.

Quicker Growth

Japan’s economy grew an annualized 1.9 percent in the first quarter, more than a preliminary reading of 1.7 percent, according to revised data from the Cabinet Office. A separate report showed the nation posted a 22nd consecutive monthly current-account surplus.

“Diminishing odds of more BOJ easing and Japan’s large current-account surplus will keep dollar-yen under downside pressure over the coming months,” said Elias Haddad, a currency strategist at Commonwealth Bank of Australia in Sydney.

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, declined 0.3 percent after dropping 0.4 percent Tuesday. The greenback dropped 0.2 percent to $1.1378 per euro.

Investors have trimmed bets the Fed will raise interest rates in coming months after data Friday showed U.S. employers added the fewest jobs in May in almost six years, and Chair Yellen said Monday lingering headwinds for the economy may take months to resolve. 

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