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Singapore - The yen held a three-week decline against the dollar as hedge funds trimmed bullish bets on the Japanese currency by the most since May and speculation increased that the Federal Reserve will raise interest rates this year.
Japan’s currency was little changed after declining 3% in the past three weeks as Bank of Japan Governor Haruhiko Kuroda said this month the central bank had no intention of reducing bond purchases and an economic adviser to Prime Minister Shinzo Abe called for a third supplementary budget and closer coordination between monetary and fiscal policy.
A Bloomberg gauge of the dollar was within one-half percent of its highest level since March as the market-implied probability the Fed will tighten this year held at 66%, compared with 59% at the end of September.
“We have turned bullish dollar-yen,” said Elias Haddad, a senior currency strategist at Commonwealth Bank of Australia in Sydney. “Japanese government fiscal easing and a bottoming out of commodity prices will narrow Japan’s current-account surplus and weaken the yen.”
The yen was at ¥104.13/$ at 12:20, after weakening 0.5% on Friday. The Bloomberg Dollar Spot Index was little changed, after reaching the highest level in almost seven months on October 13. The euro climbed 0.2% to $1.0992, having tumbled 2% last week, its biggest drop versus the greenback since November.
Oil negative
As an oil importer, Japan sees the rise in crude prices as negative for its currency. Money managers are the most bullish on the US benchmark crude contract in two years, reducing bets on lower prices as OPEC agreed to its first deal to cut output in eight years. Brent crude-oil futures rose 0.5% to $52.19 a barrel on Monday.
“Higher oil prices would weaken Japan’s terms of trade,” said Lee Hardman, a London-based foreign-exchange strategist at Bank of Tokyo-Mitsubishi UFJ. “Higher prices also help to lift global yields, particularly outside of Japan, as inflation expectations rise. Generally when yields outside of Japan rise, that helps to weaken the yen against other currencies.”
Hedge funds
Bullish bets on the yen by hedge funds and other large speculators exceeded those benefiting from losses by 45 909 in the week ended October 11, down by 22 786 contracts from the previous period, Commodity Futures Trading Commission data show. That’s the biggest drop since the week ended May 24.
Speculation the BOJ will consider more easing will intensify before its next meeting on November 1, while the European Central Bank is set to announce in December an extension of its asset purchases, according to Royal Bank of Scotland.
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