Yen Plunges against Major Peers as Investors’ Risk Appetite Surges

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Yen Declines but Remains Resilient Despite the Ukraine-Russia ConflictThe yen lost its ground against its peers on Friday as higher risk appetite by investors saw them buy riskier assets before the end of the quarter.

The Japanese currency, normally viewed as a safe-haven currency due to its ability to retain its value in uncertain periods, fell 0.6 percent against the dollar to 102.81. It also fell 0.7 percent to 141.36 against the euro; and 0.8 percent against the British pound to 171.10.

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The yen’s decline hastened soon after U.S. stock markets rallied strongly. This decline coincidentally happened as the yield of 10-year U.S. Treasury notes rose. The gains were attributed to bets by short-term traders and minor adjustment to portfolios by asset managers before the end of the first quarter.

When U.S. interest rates go up, while Japan’s remain stagnant, dealers usually make money on the spread between them by selling the yen and purchasing the dollars. Traders probably made the bets this Friday as U.S. stocks rose.

“Usually when U.S. equities go higher, U.S. yields rise, widening interest-rate differentials [between the U.S. and Japan],” Shahab Jalinoos, the head of forex strategy and macro research at UBS Securites LLC told Wall Street Journal. “That can make dollar-yen a good bet.”

Japanese consumer-price index rose 1.3 percent from a year earlier as the Bank of Japan’s bond-buying program rolled out to jolt the economy and combat inflation started working.

Unemployment rate fell to 3.6 percent in February, down from 3.7 percent a month earlier. However, household expenditure declined 2.5 percent in February, lagging analysts’ forecast of a 0.1 percent increase.

On April 1, the national sales tax is expected to rise to 8 percent, up from 5 percent, which is forecasted to result in lower retail sales and household spending. If BOJ continues with its asset purchases, the yen is expected to weaken against other currencies.

To contact the reporter of this story; Jonathan Millet at john@forexminute.com