Yen continues climb as safe-haven appeal strengthens

Tokyo

THE yen continued its seemingly relentless climb against the dollar and other currencies on Thursday, even with Tokyo markets closed for a holiday, underlining what dealers say is growing evidence that the currency has become a first-choice haven amid a sea of international financial turbulence.

The yen at one point touched a 15-month high of 112.50 to the dollar during trading in Sydney, the Australian Associated Press reported; even higher levels were reported elsewhere, although a more stable "home ground" quotation will be available only on Friday, when Tokyo markets re-open.

Yen appreciation is as much a factor of dollar selling as of yen buying, analysts say; investors have been selling dollars since US Federal Reserve chairwoman Janet Yellen gave rather inconclusive testimony this week, suggesting that the Fed is in no hurry to raise interest rates again soon.

Meanwhile, dealers expect the yen to continue climbing. Chief foreign exchange strategist Tohru Sasaki of JP Morgan Chase Bank in Tokyo said in comments made available to The Business Times: "The risk of further appreciation (of the yen) may be heightening."

The former Bank of Japan (BOJ) foreign-exchange specialist added: "We maintain our forecast of 110 (yen to the dollar) by the end of 2016."

He implied, however, that this could change if the yen continues to spike as dramatically as it has done so far this year, from levels of below 120 to the dollar.

The extreme movements in the value of the Japanese currency, which the country's finance minister Taro Aso described earlier this week as "rough", could prompt some dollar-buying intervention in currency markets by the Japanese authorities in order to smooth out movements, some analysts believe.

Also, when the central bank recently brought interest rates on deposits that commercial banks hold with the bank into negative territory, BOJ governor Haruhiko Kuroda indicated that that the central bank was prepared to slash rates even further if necessary.

But analysts attribute the yen's sharp climb to a series of factors that would likely negate any official intervention in foreign-exchange markets, and would also defeat any moves aimed at weakening the yen by driving interest rates down even further, they say.

JP Morgan's Mr Sasaki said heavy investment in foreign stocks and bonds by Japanese financial institutions was a big factor last year in pushing the yen down, as was the swing of Japan's current account balance from a deficit into a surplus on the back of falling oil prices and other factors.

"The actions of Japanese investors, which were major yen sellers in 2015 through their investments in foreign securities, may hold the key to the future (yen) market," he said.

"In particular, the large amounts of foreign equities which Japanese investors bought in 2015 more than likely have unrealised losses. If they unwind their positions and buy back (the yen) to cut their losses, (the yen) could strengthen further."

Another factor said to be contributing the yen's surge is the unwinding of so-called "carry trade" positions involving the currency, dealers said. Carry trades involve using a perceived "stable" currency such as the yen to finance purchases of other foreign securities.