Author: Lei Wei
SINGAPORE (Reuters) – The yen rose to its highest level in 2-1/2 months against the dollar on Thursday as yen carry trades unwound, and climbed to multi-month highs against other currencies ahead of next week’s Bank of Japan (BOJ) meeting Risk appetite deteriorated.
The dollar, euro, pound and other major currencies were down more than 1% against the yen by mid-morning in Asia, with analysts attributing this to the Bank of Japan abandoning short yen bets on the eve of its July meeting, which will see a rate hike. on the card.
The central bank is likely to discuss whether to raise interest rates next week and unveil plans to roughly halve its bond purchases over the next few years, sources told Reuters, signaling its determination to steadily ease its massive monetary stimulus.
The yen surged more than 1% to a peak of 152.23 against the dollar, its highest level since early May.
The euro fell more than 1% against the yen to 165.03 yen, also its lowest level since May, while sterling fell 1.1% to 196.38 yen.
“We know that the speculative community has very large short yen positions, and as the unwinding happened, I think a lot of stops were triggered and a lot of those short yen positions started to get stopped out,” said Khoon Goh, a director at the firm. Bank Asia Research.
“The market is also starting to factor in the Bank of Japan’s actions next week, so I think that will also help with further unwinding of yen shorts.”
The yen also found some safe-haven support as Wall Street closed sharply lower as tech stocks continued to rotate, dampening risk sentiment.
“I think it’s just a perfect storm right now. You’re getting unwound on the tech trade, you’re getting unwound on the yen carry trade… you’re getting unwound on the yen carry trade,” he said. ·Tony Sycamore, IG market analyst.
The wave of risk aversion has hit the Australian and New Zealand dollars, which were already under pressure from weak commodity prices.
The Australian dollar was last down 0.43% at $0.6553, having hit a 2-1/2-month low earlier in the session.
It fell 0.2% to $0.5918.
Elsewhere, the euro rose 0.03% to $1.08425 and the pound fell 0.09% to $1.2895.
A separate PMI survey released on Wednesday showed that business activity growth in the euro zone stagnated in July, while British business activity picked up in the same month.
U.S. business activity also climbed to a 27-month high in July, but businesses appear to be struggling to maintain higher prices for goods and services due to consumer resistance.
Ariane Curtis, senior global economist at Capital Economics, said: “Overall, the PMI release does not change our view that the ECB, Bank of England and Fed will views on interest rate cuts.
Traders will also be watching U.S. second-quarter economic growth data due later on Thursday, although the results are unlikely to significantly change bets on the Federal Reserve cutting interest rates this year as September’s cut has already been fully priced in.
The dollar fell more than 0.1% against a basket of currencies to 104.21, although this was mainly due to a sharp rise in the yen.
In China, the yuan was last stable at 7.2589 against the dollar.
China’s central bank surprised markets for the second time this week on Thursday by conducting unplanned lending operations at extremely low interest rates, a sign that the authorities are trying to provide larger monetary stimulus to prop up the struggling economy.
On the same day, five major state-owned banks said they would lower deposit interest rates. This was the first time a Chinese bank had significantly lowered deposit interest rates since December last year.
