Yen Rises on Haven Demand as Treasury Yields, Equities Decline

  • Concerns over North Korea, Qatar damp risk appetite: Mizuho
  • AUD, NZD down as central banks buck hawkish trend: Forrester

How Political Risks Are Impacting Markets

The yen strengthened as U.S. Treasury yields held their declines from Wednesday and Japanese stocks slumped amid geopolitical tensions from North Korea to Qatar.

Japan’s currency advanced against its developed-market peers as investors favored safer assets. Australia’s dollar weakened after a report quoted a central bank board member as saying that the authority wasn’t in a rush to raise interest rates, even as its global counterparts turn increasingly hawkish. Japan’s benchmark 10-year bond yield climbed to 0.1 percent for first time in more than four months.

“There has been a mechanical reaction to softer Treasury yields and consequent narrowing in the spreads between Treasuries and Japanese government bonds that tend to drag dollar-yen,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank Ltd. in Singapore. “The softer Nikkei is yet another drag on the dollar-yen. Both of these are consistent with the global uncertainties - North Korea to Qatar - that tend to reduce risk appetite.”

  • USD/JPY drops 0.3% to 112.95; Japan’s Nikkei 225 declines 0.6%
  • Treasury 10-year yield steady at 2.32% after dropping 3bps Wednesday, when minutes of the Fed’s June meeting showed policy makers couldn’t reach an agreement on the timing of when to begin shrinking its balance sheet
    • Officials continued to view gradual interest-rate increases as appropriate while starting the process of unwinding the $4.5 trillion balance sheet this year, the minutes showed 
  • AUD/USD slips 0.1% to 0.7599 after earlier dropping to as low as 0.7586
    • Reserve Bank of Australia’s Ian Harper says there’s ‘plenty of evidence’ not to rush rate hikes, according to an interview with the Wall Street Journal published in The Australian newspaper
    • AUD/USD briefly pared losses to touch 0.7611 after Australia’s May trade surplus beat estimates
    • Reflex buying of AUD/USD by leveraged accounts across electronic platforms after May trade data beat estimates hit a wall of macro selling, according to an Asia-based FX trader
  • NZD/USD slips 0.2% to 0.7278 amid selling from Asia spot desks which are going with bearish client flows across platforms, Asia-based FX traders say
    • Intraday accounts started selling after pair failed to rally on better-than-expected 11-month budget data
  • “The RBA and RBNZ recently indicated they are remaining on hold and so are bucking the trend among the G7 central banks toward more hawkish rhetoric,” says David Forrester, FX strategist at Credit Agricole CIB’s Hong Kong branch
    • “This leaves the AUD and NZD being pressured lower by higher global bond yields, especially Treasury yields, as carry trades remain under pressure”

— With assistance by Michael G Wilson

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