Yen Heads for Biggest Weekly Drop Since 1999 on Stimulus Bets

  • Currency swings from June’s best performer to July’s worst
  • Euro set for its biggest weekly advance since June 3

Japan's Hunt For Yield Continues

The yen headed for its worst week since 1999 on speculation Prime Minister Shinzo Abe’s stimulus plan will weaken the currency and as better-than-expected Chinese economic data sapped demand for havens.

Japan’s currency declined 5 percent this week, the worst performer against the dollar among 16 major currencies tracked by Bloomberg. Its one-month historical volatility rose to its highest since December 2008 on Thursday. The yen also fell as demand for the safest assets eased after new U.K. Prime Minister Theresa May formed a government, ending a political stalemate that followed the nation’s vote to leave the European Union.

“Long yen positions are being unwound as there is some nervousness that Japanese policy makers could act decisively to reboot confidence in the economy,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “Demand for haven assets also subsided as the initial Brexit vote fallout has been less than feared.” A long position is a bet an asset’s price will increase.

The yen depreciated 0.4 percent to 105.79 per dollar as of 7 a.m. New York time, having earlier touched 106.32, its weakest level since June 24. It slid 0.6 percent to 117.78 against the euro, extending its weekly decline to 5.7 percent.

Signs that policy makers from Tokyo to London would respond with stimulus to prevent a Brexit-driven slowdown pushed the yen down at least 3 percent against all of its 31 major peers this week. Declines accelerated after Abe increased his majority in last weekend’s upper house election, winning a fresh mandate to put life into efforts to boost consumer prices and economic output.

CurrencyLevelDaily MoveWeekly MoveMost Since
Yen105.79-0.4%-5.0%Feb. 19, 1999
Pound$1.3370+0.2%+3.2%Oct. 16, 2009
Euro$1.1137+0.2%+0.8%June 3, 2016

The prospect of stimulus to boost economies sapped demand for haven assets this week. Appetite for higher-yielding investments increased as the Bank of England’s first policy decision since Brexit saw officials signal more stimulus in August, even as they refrained from an anticipated rate cut.

“Markets are running ahead on expectations and the price action is nothing more than people paring back the excessive moves” after the U.K. voted last month to leave the EU, said Shusuke Yamada, chief Japan currency strategist at Bank of America Merrill Lynch in Tokyo.

China’s gross domestic product rose 6.7 percent in the second quarter from a year earlier, compared with a projection of 6.6 percent by economists Bloomberg surveyed and in line with the government’s growth target of at least 6.5 percent for the full year. Industrial output and retail data for June also beat estimates.

The euro rose for a fifth day even after France came under a second terror attack in eight months. The shared currency gained this week amid optimism that any fallout from Brexit on the euro region may be limited.

“We don’t see nor expect any near-term effect from these terror attacks on global markets,” said Martin Enlund, chief analyst at Nordea Bank AB in Stockholm. The event coincides with both “anti-EU and anti-globalist sentiment” and may “trigger further stresses for the EU as a whole down the road, but it’s not tradeable for global markets today.”

The euro rose 0.2 percent to $1.1137, bringing its weekly gain to 0.8 percent, the biggest since June 3.

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