Yen extends rally to second day as traders bet on early BOJ hike
THE rally in the yen spilled over into a second day as traders wagered that the Bank of Japan will scrap the world’s last negative interest-rate regime much sooner than previously thought.
The currency advanced as much as 1.1 per cent against the dollar on Friday (Dec 8), after briefly jumping almost 4 per cent during the New York session.
The outsized move Thursday may have been amplified by speculators closing bearish wagers on the yen, after leveraged funds boosted these to the highest level in more than a year last week.
There were also suggestions that a lack of liquidity and algorithmic trading exacerbated the spike.
“Yen-short positions may have been liquidated considerably,” said Yukio Ishizuki, senior currency strategist at Daiwa Securities, who added that stop-loss trades were also likely triggered.
“Soft US jobs data later today may spur more dollar selling, with 141 for the yen in sight again.”
BT in your inbox
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
It traded at 143.39 as of 10.47 am in Tokyo, as traders also began looking ahead to the US non-farm payrolls report. That may provide more evidence of a cooling labor market heading into next week’s Federal Reserve policy meeting.
Comments from BOJ Governor Kazuo Ueda earlier Thursday, along with remarks from one of his deputies on Wednesday, jolted financial markets in Tokyo and globally. The sharp push for the yen saw it appreciate against all of its peers in the Group of 10 on Thursday.
Economists increasingly expect the central bank to achieve its inflation target, while remaining less aggressive than traders in expectations for how soon the BOJ will move. A growing majority of economists forecast that the negative rate regime will end by April, according to a Bloomberg survey.
They are focused on whether Ueda gives any indication of changes to come in a policy statement or at his press conference following the next decision on Dec. 19, rather any outright change in settings that soon.
“The odds of tightening administered rates on Dec 19 are still a bit of a long shot,” said Bipan Rai, CIBC’s global head of foreign-exchange strategy in Toronto. “In conjunction with greater certainty that the Federal Reserve is done with rate hikes, the risk-reward of USD/JPY longs has shifted materially.”
Leveraged funds boosted their net-short position in the yen to 65,611 contracts in the week ending Nov 28, the most since April 2022, according to Commodity Futures Trading Commission data.
The yen’s rally Thursday was the biggest since the BOJ blindsided investors in December last year after then Governor Haruhiko Kuroda doubled the cap on 10-year yields, sparking bets on policy normalisation.
Ueda, who took the helm in April, has maintained a cautious approach and gradually widened the yield-curve control this year. He kept ultra-loose monetary policy in place at a time when other major central banks were increasing interest rates to contain global price growth.
BOJ officials have said the bank is not confident enough yet about attaining the price goal of stable inflation at 2 per cent accompanied by wage growth.
Data released Friday showed labour cash earnings increased more than expected in October, up 1.5 per cent on year compared with the median estimate of 1 per cent in a Bloomberg survey of economists. Still, real cash earnings dropped for the 19th straight month.
The yen is still down about 9 per cent against the greenback this year, the second worst performance among G-10 peers. BLOOMBERG
Share with us your feedback on BT's products and services
