Yen Surges on Concern Over U.K. Political Turmoil, Italian Banks

  • BNP’s European political risk index is at highest since 2011
  • Yen rises as drop in stocks drives investors to haven assets

The yen rallied, approaching its strongest level in 2 1/2 years, as investors focused on the political risks in the U.K. that are spreading beyond its borders as well as fresh concerns about the health of Italy’s banks.

Japan’s currency rose against all 16 of its major peers as Asian and European stocks fell, stoking demand for haven assets. Britain’s ruling Conservative Party on Tuesday started the process of selecting its next leader, who will also be the new prime minister and the person who will manage the nation’s withdrawal from the European Union following its June 23 referendum.

Regulators are pressing Italian banks to clean up their balance sheets and build up buffers against losses after the British vote to leave the EU exacerbated a selloff in the lenders’ shares.

“There are many factors that are driving risk aversion -- political uncertainty, the global growth outlook and concern about the banking sector, whose profit margins are being hurt by low interest rates,” said Manuel Oliveri, a currency strategist at Credit Agricole SA’s corporate and investment-banking unit in London. “The yen is the safe-haven currency of choice, and therefore is well-supported.”

The yen climbed 0.9 percent to 101.69 per dollar as of 9:41 a.m. in New York, after appreciating to 99.02 on June 24, the strongest level since November 2013. It gained 0.9 percent to 113.37 per euro.

Japan’s currency has jumped 18 percent versus the dollar this year, the most among its Group-of-10 peers, though a Bloomberg survey has it weakening to 105 by year-end. The yen’s appeal as a haven stems from Japan’s current-account surplus, the broadest measure of a nation’s trade.

Tensions from Britain’s vote to leave the EU helped drive a BNP Paribas SA index of political risk in the euro region to the highest since 2011. The pound fell to a 31-year-low of $1.3115 Tuesday, surpassing levels reached in the aftermath of the referendum.

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