Yen Advances on Confidence Report as Brexit Prompts Haven Demand

  • Yen is underpinned as market assesses fallout from U.K. vote
  • Tankan ‘modestly reduces’ odds of more BOJ easing, CBA says

The yen strengthened for the first time in four days after a survey showed business confidence in Japan stabilized and as investors sought safe assets while assessing potential economic fallout from Britain’s decision last week to leave the European Union.

The Japanese currency, which is often bought in times of market turmoil, advanced against all except one of its 16 major peers. It pared a weekly decline versus the dollar as investors judged that the Tankan report may reduce the need for the Bank of Japan to introduce further stimulus. The index of confidence among large manufacturers held at 6 in the second quarter, unchanged from the previous period, the BOJ said on Friday.

Government bond yields in Japan and the U.S. fell to records as investors sought havens amid concern that Britain’s decision to exit the EU may contribute to a global economic slowdown. The pound declined after Bank of England Governor Mark Carney said Thursday that the central bank may need to loosen monetary policy as it tries to contain the damage from the result of the country’s June 23 referendum.

"The yen will be a relative outperformer in this environment," said Viraj Patel, currency strategist at ING Groep NV in London.  "It’s the global risk environment in general that’s the key function for yen. The near-term story would be how much the post-Brexit financial contagion spills over into the markets."

Patel forecasts the yen will strengthen to below 95 per dollar by third quarter.

Japan’s currency added 0.7 percent to 102.52 per dollar as of 5 p.m. New York time, paring this week’s decline to 0.3 percent. It gained 0.4 percent to 114.16 per euro.

“At the margin, the Tankan modestly reduces the chances the B0J announces more easing at its next meeting,” said Joseph Capurso, a senior currency strategist in Sydney at Commonwealth Bank of Australia. “But we are still keeping our BOJ call for more easing because inflation is low and will continue to fall further away” from the central bank’s 2 percent target.

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