Dollar depreciates to 16-month low against yen

Slump prompted by global trade war fears, political controversy in Japan

The dollar slipped to a 16-month low against the yen on Monday, pressured by lingering fears of a global trade war and a political crisis that has engulfed Japanese Prime Minister Shinzo Abe.

The US currency traded at 104.955 yen after falling to 104.560, its weakest value since November 2016.

The dollar had already slumped 1.2 percent versus its Japanese peer last week as escalating trade tensions between China and the US stoked concerns about global growth.

Global markets were shaken after US President Donald Trump moved to impose tariffs on Chinese goods, edging the world’s two largest economies closer to a trade war.

Views that Japan’s political scandal could deepen were also seen lifting the yen, with a key figure in a cronyism controversy due to testify in parliament on Tuesday gripping Abe.

Economic measures dubbed “Abenomics” initiated by Abe have been a factor pulling the yen down over the past few years to the benefit of exporters. All events that have led to a decline in the prime minister’s support ratings have been seen weakening his ability to keep Abenomics in place.

“With worries about the US and China locking horns on trade issues and Japan’s parliamentary testimony coming up on Tuesday, few participants are willing to buy the dollar,” said Yukio Ishizuki, senior currency strategist at Daiwa Securities.

“It really is typical ‘risk off’ trades dominating right now, with the yen and Swiss franc standing as the big beneficiaries. But more speculators are jumping in, and any reversals could be sudden and violent,” Ishizuki added.

According to calculations by Reuters and Commodity Futures Trading Commission data released on Friday, speculators’ net short positioning on the yen shrank rapidly to roughly 22,000 contracts last week, the smallest amount since November 2016, from a net short position of about 79,500 contracts.

“Even if a fresh round of speculative moves betting on yen strength emerges, the dollar versus yen fall is likely to sputter out before the pair reaches 100 yen,” said Koji Fukaya, president at FPG Securities.

During past episodes of turmoil such as the European debt crisis of 2016, participants had more reason to actively buy the Japanese currency but the situation has changed this time around with the US economy standing stronger and their yields higher, Fukaya said.