FOREX-Yen hits 17-month high vs dollar as risk sentiment sours

* Yen up 0.8 percent vs euro and dollar

* Investors cautious about intervention talk

* Option barriers reported at 110 yen -traders (Recasts, adds details)

By Anirban Nag

LONDON, April 5 The yen soared to its highest in 17 months against the dollar on Tuesday as sentiment in stock and commodity markets soured, with crude oil prices retreating further and driving investors to seek traditional safe-haven currencies and assets.

The latest drop in the dollar saw it add to recent losses that came after U.S. central bank chair Janet Yellen indicated she was in no hurry to tighten monetary policy last week.

Fed funds futures <0#FF:> now have barely one rate hike priced in for this year. Unsurprisingly, the dollar has struggled against that backdrop.

The dollar was down 0.9 percent at 110.30 yen, its lowest since Oct. 31, 2014 and down 8.2 percent on the year. Traders cited huge options barriers at 110 yen that could slow the greenback’s drop.

Investors were cautious about driving the yen much higher given the risk of intervention by Tokyo. There has been a lot of speculation recently, with investors wondering how much appreciation Japanese officials will tolerate before they are forced to act and weaken the currency.

“Clearly risk sentiment is not good and oil prices are declining this week and all these feeding and driving the dollar lower against the yen. The yen is also higher against other currencies,” said Yujiro Goto, currency strategist at Nomura.

“Of course, the Bank of Japan will be concerned not just about the rise in the yen, but also a drop in stock prices. So we may see some comments from the authorities there, but actual intervention is unlikely until dollar drops below 110 yen.”

The BOJ adopted negative interest rates earlier this year, but the yen has steadily risen since then, posing a challenge to central bank which wants to boost inflation. The central bank meets in about three weeks’ time and pressure will be mounting on it to act before upper house elections later this year.

“For the dollar to rebound, the decline in crude oil and U.S. debt yields have to halt and Japanese authorities would need to clarify their stance on further monetary easing,” said Masafumi Yamamoto, chief FX strategist at Mizuho Securities in Tokyo.

Meanwhile, the euro fell 1.2 percent against the yen to a two-week low of 125.30 yen while it also lost ground against the dollar to trade at $1.13625, well below a 5-1/2-month peak of $1.1438 scaled last week.

The Australian dollar fell with commodity prices including oil, which dropped for a third session in a row on Tuesday with WTI crude trading at $35.51 per barrel. Lower commodity prices tend to reduce inflationary pressures, causing a headache for policymakers in the developed world, who want to head off the threat of deflation.

The Aussie was down 0.4 percent at $0.7567 having risen after the Reserve Bank of Australia left its cash rate unchanged at a record low 2 percent as widely expected.

Source: Reuters

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