The yen jumped 2 percent to its strongest in 15 months against the dollar on Thursday in another wave of global capital flows into the traditional security of Japan, raising expectations of official intervention to cool the currency’s rise.
A chaotic week on European and U.S. stock markets has sent investors scuttling for the perceived safety of the yen, upping its value against the dollar by almost 9 percent since the start of February.
The euro and Swiss franc have also benefited, both hitting their highest in around four months against the dollar in frantic morning trade on major currency markets in Europe.
“We got to 8 a.m. this morning and it just hit in a wave,” said Richard Benson, head of portfolio management at currency fund Millennium in London.
He said that suggested the surge was probably driven by model flow from big fund investors adjusting to the sharp moves on stock markets of the last few days. Japanese markets were closed for a holiday on Thursday, and overall volumes in the yen were half of those a day earlier on the EBS trading platform.
Another sign of the deepening concern of policymakers came from Sweden’s Riksbank, which cut interest rates further into negative territory and by more than analysts had expected, driving the crown EURSEK= more than 1 percent lower.
A number of banks have raised the prospect of Japan outright intervening in currency markets, as it last did in October 2011, although most assume it would be a harder sell to global policy forums like the IMF and G20, which generally discourage intervention to weaken currencies.
“It looks like we may head back to direct FX intervention, but that is also hard to justify and may ultimately fail,” HSBC analysts said in a note on Wednesday.
Market thinking and moves in the last 24 hours have been dominated by Federal Reserve Chair Janet Yellen, whose testimony to Congress on Wednesday gave investors no reason to change their minds that the next rate hike will be a long time coming.
Sticking largely to the script, Yellen made clear that the U.S. central bank remained on a path of ‘gradual’ policy tightening, although she also highlighted growing risks facing the economy.
That gave currency investors the green light to continue the current trading theme: buying the safe-haven yen.
By 0910 GMT, the dollar was 1.8 percent lower at 111.37 yen JPY=, having briefly reached 110.99 yen.
The euro last traded at $1.1321 EUR=, up a third of a percent on the day. The single currency was more than 1 percent higher against sterling EURGBP= at 78.53 pence but 1.5 percent down against the yen at 126.00. EURJPY=