Traders have plenty of reasons to bet against JPY

11.07.2017 / 20:14

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The yen was at its weakest level against the dollar in nearly four months on Tuesday and has slipped 4.75 per cent over the past 18 trading days. Positioning data shows traders selling, or shorting, the yen at levels not seen since the start of January.

Investors do not need to look far to explain yen weakness. While the Federal Reserve contemplates its fourth rate rise since December, the Bank of Canada prepares to increase rates, the Bank of England engages in a full-throttle debate about monetary policy and other G10 central banks consider similar moves, Japan’s policymakers remain steadfastly wedded to quantitative easing.

Underlining this position, the BoJ on Friday stepped up its unconventional monetary policy, saying it would buy an unlimited amount of 10-year Japanese government bonds. It remains determined to keep 10-year JGB yields as close to zero as possible, thereby widening the spread in yields between Japan and other countries.

“The Bank of Japan looks likely to be the only major central bank that will not raise its interest rates this year,” says Yann Quelenn at the online bank Swissquote. “This is one great reason why investors are staying away from the JPY.”

More likely to influence the yen is Japanese politics. Next year sees a trio of calendar events — the end of BoJ governor Haruhiko Kuroda’s term of office in April, the finale of prime minister’s Shinzo Abe’s three-year term as Liberal Democratic party leader in the autumn, and a general election, which has to be held by the end of 2018.

Mr Abe is languishing in the polls, and if his ratings fail to recover, investors will begin to question the future of Abenomics, his famed economic policy.

“The failure of Abenomics would strengthen the yen, because it would place a question on monetary policy,” says Derek Halpenny from MUFG.

Source: Financial Times

Trader Bozhidar Arabadzhiev

Varchev Traders

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Traders have plenty of reasons to bet against JPY

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