Yen weakens as fading turmoil from Turkey saps demand

Edinburgh - The yen dropped as global markets showed resilience in the wake of the failed coup attempt in Turkey, sparking a selloff in haven assets.

Japan’s currency, which often appreciates during market turmoil, fell as much as 1.1% versus the dollar on Monday, approaching its lowest level in three weeks. The yen depreciated against all except one of its 31 major peers. The lira led gains, followed by the rand, after the attempt to unseat President Recep Tayyip Erdogan was thwarted.

The yen tumbled 4.1% last week as Prime Minister Shinzo Abe’s victory in upper house elections fueled speculation the country would intensify its efforts to fight deflation, with the premier pledging  “bold” action for stimulus. Options that were said to be considered included a policy of known as helicopter money - such as direct financing of government spending by the central bank.

Ben S. Bernanke, the former chairman of the Federal Reserve who met officials in Tokyo, was said to have floated the idea of the nation issuing perpetual bonds.

BoJ stimulus?

“There’s a limited impact from the events of the weekend, and they don’t change the context of the yen movement,” Hidetoshi Honda, a currency strategist at Mizuho Bank in London, said in reference to the failed coup. “In terms of the BoJ stimulus, it’s likely that they will be forced to take some action and it’s going to give some downward pressure to the yen for the course of the year.”

Japan’s currency depreciated 0.7% to ¥105.65/$ at 12:19. The lira strengthened 1.9¥ to 2.9584 per dollar, after sliding 4.6% on Friday. The rand appreciated 1.9% to 14.2985, having weakened 2.4 percent at the end of last week. Japanese financial markets were closed for a public holiday on Monday.

Japan’s chief cabinet secretary Yoshihide Suga in an interview ruled out the issuance of deficit bonds to fund an economic stimulus package planned for the autumn, hinting at the use of construction debt for longer-term investments.

Investors seem to have “decided that Turkey’s failed coup was a domestic affair which will blow over quite fast,” Kit Juckes, a London-based global strategist at Societe Generale SA, wrote in a note to clients. While Turkey’s dependence on foreign funding means gains by the lira “can’t go that much further,” the “broader market implications are limited,” he said.