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Yen Surges Past 100 Per Dollar as U.K. Vote Spurs Rush to Safety

Bloomberg logoBloomberg 24/06/2016 Lananh Nguyen
Financial markets take a tumble© AP Photo Financial markets take a tumble

The yen soared past a milestone versus the U.S. dollar for the first time since November 2013 as Britons’ vote to quit the European Union spurred demand for this year’s best-performing major currency as a haven.

Japan’s currency strengthened as much as 7.2 percent to 99.02 per dollar. It rallied against all 31 of its major peers as investors sought safety in the aftermath of the U.K. decision. Investors and analysts have said a move below 100 would put pressure on Japanese authorities to intervene to weaken the currency as its advance in 2016 threatens to unwind much of the impact of the Bank of Japan’s record monetary easing. The central bank stands ready to provide sufficient liquidity to ensure the stability of financial markets, BOJ Governor Haruhiko Kuroda said in a statement Friday.

“All hell is breaking loose,” said Vishnu Varathan, a senior economist in Singapore at Mizuho Bank Ltd. “The only surefire is you buy yen, you buy U.S. Treasuries, you buy gold, and you sit tight.”

The central bank’s stimulus has been a key part of Prime Minister Shinzo Abe’s so-called three arrows aimed at reviving his nation’s economy after more than a decade of deflation. Powered by unprecedented central-bank easing, the yen reached a 13-year low of 125.86 to the dollar in June 2015. Its strength since then comes despite the BOJ’s surprise introduction of a negative deposit rate in January.

The yen appreciated 3.7 percent to 102.29 per dollar as of 12:06 p.m. in New York, surging in a range of 3 to 11 percent against its 31 biggest peers. The Japanese currency gained as much as 18 percent against the U.K. currency, the most since at least 1971, to touch 133.31 per pound.

After four consecutive years of declines, the yen has advanced 17 percent this year against the greenback in the best performance among developed nations, amid concern a Brexit would drag down already-tepid global growth. The yen gained at the start of the year on speculation China and the U.S. -- the world’s largest two economies -- will struggle to overcome headwinds.

“The safety flows could see dollar-yen testing 100 again,” said James Athey, a money manager at Aberdeen Asset Management Plc in London, which has $421 billion in assets. “Talk is cheap with respect to the BOJ now, it almost sounds like desperation. They speak because they know they can’t act.”

Athey is bullish on the yen against the U.S. dollar. He’s bearish on the euro, Australian and New Zealand dollars and neutral on the pound.

Stimulus Pressure

Some analysts had speculated the BOJ will be under increased pressure to add to stimulus should Britain leave the EU. Kuroda said June 16, after leaving policy settings unchanged for a third meeting, that the U.K. referendum was “making international financial markets somewhat unstable,” and he will carefully monitor the impact of the vote. He reiterated the central bank won’t hesitate to add to stimulus if necessary, while declining to comment on the potential for an unscheduled policy meeting.

“Yen has been the biggest winner,” said Daragh Maher, head of U.S. currency strategy at HSBC Holdings Plc, who worked overnight in New York. “The currency market reaction has been pretty rational -- sterling has been the biggest loser, euro has been weaker. All your risk-on currencies have struggled.”

The yen has also resisted efforts by Japanese government officials to talk it lower. Finance Minister Taro Aso said June 17 he wants “to coordinate closely with other nations to deal with” abrupt moves in the yen, while adding earlier this week that Japan won’t intervene without due consideration. He said Friday appropriate measures can be taken in foreign-exchange markets if needed and Group-of-Seven nations have currency swap agreements that can be used if required. He declined to comment on whether there had been intervention by authorities.

The Ministry of Finance views unilateral intervention as an unlikely tool in the event of a surge in the yen should the U.K. vote to leave the EU, according to people familiar with the matter, Bloomberg reported earlier this week.

“Yen is already seeing a huge bid,” said Karl Schamotta, director of foreign-exchange research and strategy in Toronto at Cambridge Global Payments, which hedges currencies for companies. “That need for safety might persist all the way through Monday,” said Schamotta, who worked alongside colleagues in staggered shifts overnight. Currency market liquidity is “fairly high” as North American participants come online, he said.

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