Yen Surges on Haven Demand as Brexit Fears Hit Pound

  • Bearish bets on pound double to most since June 2013
  • 27.5% of 40 economists see BOJ easing this week, survey shows

The yen jumped 1 percent against the dollar and the pound tumbled to the lowest level in two months as anxiety about a potential British exit from the European Union fueled demand for the safest assets.

Hedge funds doubled their short positions on the pound to the most since June 2013, while they added to net bullish bets on the yen for the first time in seven weeks 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. The pound weakened for a fourth day after polls published over the weekend showed the question of whether the U.K. will opt to leave the EU was too close to call before the June 23 referendum.

“There are genuine Brexit risks as the price action in the yen suggests,” said Vishnu Varathan, a Singapore-based economist at Mizuho Bank Ltd. “It looks quite clearly, there’s been some safe-haven trade that’s filtering through.”

Japan’s currency advanced 1 percent to 105.89 per dollar as of 6:24 a.m. in London Monday, and strengthened against all 16 of its major peers. The Japanese currency reached 105.55 per dollar on May 3, the strongest level since October 2014. Sterling slumped as far as $1.4159, the weakest since April 18, and was 0.5 percent lower at $1.4190, extending a three-day, 2 percent tumble.

The yen climbed the most in a week against the dollar as just eleven out of 40 economists surveyed by Bloomberg News forecast the BOJ will ease monetary policy at the meeting on June 15-16.  A majority of 55 percent forecast more easing on July 29, according to a Bloomberg survey of 40 economists conducted June 6-10.

“There’s no expectation in the market of policy action by the BOJ,” said Shinsuke Sato, head of foreign-currency trading group at Sumitomo Mitsui Banking Corp. in Tokyo. “That means that if it starts to look more like the U.K. will vote to leave, there’s a high probability the yen will strengthen, led by upward pressure from yen crosses.”

A survey by YouGov research for the Sunday Times newspaper showed 43 percent of U.K. respondents in favor of a so-called Brexit and 42 percent for ‘Remain.’ An Opinium/Observer poll indicated 44 percent back ‘Remain’ and 42 percent support leaving. Another survey published on Friday showed a 10-point lead for ‘Leave.’

For more news on the Brexit referendum, click here.

The day after next week’s referendum on EU membership, the pound will either sink to the lowest level in more than three decades or climb toward the highest this year, according to a Bloomberg survey of economists. Most see a drop below $1.35 if Britons decide to leave the bloc, while the median estimate following a victory for the status quo is for it to jump to as high as $1.50.

The U.K.’s currency has already dropped 3.7 percent this year, the worst performance among Group-of-10 peers, as investors assess the risks of an exit. It reached a seven-year low of $1.3836 in February after Prime Minister David Cameron announced the date of the vote, and has since fluctuated, often wildly, as polls suggested both sides could still prevail.

Positions that benefit from losses in the pound exceeded those that benefit from the gains by 66,299 contracts in the week ended June 7, while bullish bets on Japan’s currency increased by 28,016 to 42,853 contracts, a report from the Commodity Futures Trading Commission showed Friday.

(Corrects the name of the company that conducted the poll in seventh paragraph.)
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