FX Roundup: Yen spike extends into fourth successive session

The yen surged against major crosses on Thursday for a fourth successive session, with the preferred carry trade currency’s safe haven status well and truly intact.

At 1700 BST, the dollar and euro were 1.58% and 1.69% lower versus the yen deepening the previous session’s declines, changing hands at JPY 108.05 and JPY 123.04 respectively.

Overnight, dovish minutes from the US Federal Reserve revealed policymakers discussed the possibility of a rate hike in April but the overall consensus was that the risks from a global economic slowdown meant a cautious approach was needed.

The downbeat note worsened short calls on the dollar. Yet, recent Japanese economic data had been weak and the country’s oil imports were at their lowest level since 1998.

Additionally, the Bank of Japan’s latest Tankan survey for March suggested the central bank’s adoption of negative interest rates in January was doing little to convince businesses that inflation was on its way.

The survey showed that companies expected prices to increase by 0.8% on average in the next year, lower than the previous 1% expectation. Over the next three year, expectations are for 1.1% price rises, down from 1.3% expectations.

While Bank of Japan governor Haruhiko Kuroda has said he is 'monitoring the currency', Japanese policymakers have not confirmed any intervention thus far even though USD/JPY breached the psychological JPY111 and JPY 110 levels in a matter of days, with the JPY 108 level breached intraday today.

Craig Erlam, senior market analyst at Oanda, said, “It is almost as if traders are seeking to test the resolve of the Japanese central bank and finance ministry amid talks of possible intervention to put an end to its rapid appreciation. The dollar is now trading at the lowest level since October 2014 against the yen and the sell-off is showing no sign of abating.”

Additionally, Kit Juckes, head of forex at Societe Generale, said, “On the first of February, just before the BOJ's bungled attempt to ease monetary policy, the Bloomberg consensus for USD/JPY in Q4 2016 was 125, with a range of 110-134. Today, the consensus is 118, the range 100-131. That is about as confused as the FX market ever gets!”

“The current spike in positioning represents both a huge capitulation of the bearish yen consensus, and disillusion with the stronger dollar theme as US rate expectations tumble and equity indices fail to benefit from easier policy globally.”

"Japanese portfolio outflows are at historically extreme levels but [...] as expectations around the success of Abenomics in weakening the yen begin to falter, hedge ratios increase," BNP Paribas chipped in.

Nevertheless, the French broker turned less bearish on the USD/yen pair as it came nearer to its mid-year forecast of 108.0.

Meanwhile, overnight respite of commodity currencies did not last. As oil and selected metal futures headed lower, the Australian dollar fell 1.29% versus its US counterpart to change hands at US$0.7501.

The New Zealand dollar also fell 0.82% versus the greenback to change hands at $0.6768. The greenback rose across the board in the Americas up 0.60% versus the Canadian dollar to change hands CAD$1.3168.

A plethora of other commodities currencies headed lower in Latin America, with the dollar rising 1.55%, 0.95%, 1.12% and 1.94% against the Mexican, Colombian and Chilean pesos, and the Brazilian real.

Finally, the pound had yet another subdued session in absence of any major UK data, down 0.35% and 0.17% versus the dollar and euro exchanging at $1.4073 and €1.23690 respectively.

"Real rate spreads are consistent with EURUSD strength," BNP said.