Currency values were all askew in the Asian session with the Australian dollar trading flat and the kiwi tumbling 37 points. The Aussie has barely been
The yen broke through ¥111 in early trading on Thursday as safe-haven flows poured into the country and vast positions were unwound on the global derivative markets. This wiped out all the depreciation effects of the country’s “weak yen” policy over the past 15 months. The Nikkei index of stocks in Tokyo has fallen 22pc since early December.
The drastic developments have been nothing less than a disaster for Governor Haruhiko Kuroda who pushed through negative rates against strong protests by half the bank’s voting members. The chief motive for the move was counter deflation by weakening the currency.
The surging yen tightens the noose further, calling into question the whole strategy of premier Shinzo Abe, the strongman who swept into office three years ago with bold plans to break the country’s deflationary psychology once and for all.
The yen is within 4 per cent of the level it traded at before a surprise monetary easing by the Bank of Japan in October 2014 drove the currency lower. Traders are now wondering what policy makers will do to arrest recent gains. The currency has climbed against all 16 major peers this month with its biggest advances versus the Mexican peso, South African rand and US dollar.
The BOJ unexpectedly said Jan. 29 it will follow the European Central Bank by adopting negative interest rates, causing a brief slump in the yen. Its surprise easing in October 2014 has had a more sustained impact, helping drive the currency to a 13-year low of 125.86 on June 5, 2015.
Intervention in the currency markets would be a major event for Japan. The nation hasn’t bought or sold currency to sway the yen’s price since a record intervention in 2011 helped stop its advance to a post-World War II record.
A gauge of the dollar dropped to the lowest since November after Federal Reserve Chair Janet Yellen signaled market turmoil may deter policymakers from making multiple interest-rate increases this year. Federal Reserve Chair Janet Yellen said on Thursday that it is still uncertain when energy prices and the dollar will stabilize.
“It’s hard to predict exactly when that will be and there can be and have been surprises,” Yellen told a committee of lawmakers in Congress. Low oil prices and the strong dollar have both put downward pressure on inflation, which remains well below the U.S. central bank’s two-percent target rate. The US dollar recovered some of Thursday’s losses to trade at 95.76 gaining 12 points. The euro edged down 0.1 percent to $1.1308 but was not far from its overnight high of $1.1377, its loftiest peak since October 2015. It was on track for a weekly gain of 1.3 percent.