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Tokyo - Hedge funds and other large speculators boosted wagers to the highest since at least 1992 that the yen will strengthen versus the dollar, as Japan’s currency advanced to a fresh 17-month high.
The yen is heading for a seventh day of gains, the longest winning streak since September 2012, as speculators defied rhetoric from Japanese authorities aimed at checking its advance.
Chief Cabinet Secretary Yoshihide Suga repeated Monday that officials are watching the foreign-exchange market “with vigilance,” and will take appropriate action if necessary. Deutsche Bank AG and Bank of Singapore said the yen remains at or below fair value.
“The yen is nowhere near overvalued,” making it hard to justify intervention, said Sim Moh Siong, a foreign-exchange strategist at Bank of Singapore. “Even though the yen has moved quite substantially against the dollar, you look at yen relative to euro and other currencies it hasn’t really strengthened all that much.”
The yen rose 0.2% to ¥107.84/$ as of 08:48 after advancing to ¥107.63, the strongest level since October 27, 2014. It was little changed at 123.09 per euro.
Japan’s currency jumped 3.4% last week and has appreciated against all its 16 major peers this year as investors flock to haven assets amid a rout in stocks around the world.
Yen Undervalued
A measure of purchasing power parity from the Organisation for Economic Co-operation and Development shows the currency is still about 2% undervalued versus the dollar.
“Japan’s biggest problem with the current yen rally is that it is justified by fundamentals,” George Saravelos, a strategist at Deutsche Bank in London, wrote in a client noted dated April 11. The yen “is still expensive or only just approaching fair value” against the dollar, he wrote.
Speculators increased bets on yen gains against the dollar to 98 130 contacts in the week ended April 5, the most in Commodity Futures Trading Commission data starting in 1992. In mid-December, bullish yen contracts were at a 10-month low of 26 400.
A JPMorgan index measuring price swings among Group-of-Seven currencies rose toward the highest since 2011 last week. Price swings accelerated after the yen strengthened past ¥110/$ for the first time in 17 months, fueling speculation that the central bank will intervene to weaken it.
“The yen can appreciate in the short term, but the market is extremely long,” said Steve Brice, chief investment strategist at Standard Chartered Plc in Singapore. The currency may strengthen to 106 per dollar, “and then the Bank of Japan may come in and intervene, and push it back beyond 110,” he said.
