Yen rises as oil drop brings fo­cus back to global woes

The Pak Banker - - MARKETS/SPORTS -

The yen edged higher against the dol­lar on Wed­nes­day as fall­ing oil prices sparked an in­vestor flight into safer as­sets, driv­ing down US debt yields to 10month lows and dulling the green­back's ap­peal. The dol­lar fell 0.3 per­cent to 119.64 yen JPY=, pulling away from a six-week high of 121.70 yen set on Fri­day af­ter the Bank of Ja­pan stunned the mar­kets by adopt­ing a neg­a­tive in­ter­est rate pol­icy.

But oil prices have since re­sumed de­clin­ing, shak­ing equity mar­kets and bring­ing in­vestors' fo­cus back to global growth woes. "Since China growth con­cerns be­gan shak­ing the mar­kets in Au­gust, the broad theme has been cen­tral banks ver­sus global risk," said Shin Kadota, chief Ja­pan FX strate­gist at Bar­clays in Tokyo.

"The yen ben­e­fited from the lat­est round of 'risk off'. The euro, which gained as U.S. yields fell, has also be­come a sort of safe-haven since Au­gust. I don't see China woes sub­sid­ing soon and the cen­tral bank ver­sus global risk theme could play out in­def­i­nitely."

The euro eased 0.1 per­cent to $1.0915 EUR=, but was still up around 0.8 per­cent so far this week.

The 10-year U.S. Trea­sury yield US10YT=RR fell to 1.828 per­cent at one point on Wed­nes­day, the low­est since April 2015.

Such falls in U.S. yields amid con­cerns about slow­ing U.S. eco­nomic growth and grow­ing in­vestor doubts about how much the Fed­eral Re­serve can raise in­ter­est rates this year have posed head­winds for the dol­lar.

Still, the Bank of Ja­pan's foray into neg­a­tive in­ter­est rates may even­tu­ally trig­ger cap­i­tal flows that lend sup­port to the dol­lar against the yen, mar­ket par­tic­i­pants say.

With many Ja­panese govern­ment bond yields now in neg­a­tive ter­ri­tory, global FX re­serve man­agers may shift some of their hold­ings into the dol­lar and away from the yen, said Jes­per Bargmann, head of trad­ing for Nordea Bank in Sin­ga­pore. "A lot of sov­er­eign re­serves are in yen, and they might want to con­sider shift­ing out of yen... In many of th­ese board­rooms there's an op­po­si­tion to hold too much cur­ren­cies with neg­a­tive yield," Bargmann said.

In the wake of the BOJ's sur­prise move, Ja­panese govern­ment bonds with ma­tu­ri­ties of up to eight years are now be­ing quoted with neg­a­tive yields.

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