Yen surges 2 percent vs dollar as global worries deepen

[February 11, 2016]  By Patrick Graham

LONDON (Reuters) - The yen jumped 2 percent to its strongest in 15 months against the dollar on Thursday, with another wave of capital flows into the traditional security of Japan raising expectations of official intervention to cool the currency's rise.

A chaotic week on European and U.S. stock markets has sent investors scuttling for the perceived safety of the yen, upping its value against the dollar by almost 9 percent since Feb. 1.

That is the strongest performance by the Japanese currency since the aftermath of the collapse of Lehman Brothers in 2008 and has made a mockery of the Bank of Japan's shock move at the end of January to weaken it with negative interest rates.

"We got to 8 a.m. this morning and it just hit in a wave," said Richard Benson, head of portfolio management at currency fund Millennium in London.

He said the surge was probably driven by model flow from big fund investors adjusting to the sharp moves on stock markets of the last few days.

The euro and Swiss franc also benefited, hitting their highest in around four months against the dollar in frantic early trade on major currency markets in Europe.

With Japanese markets closed for a holiday on Thursday, overall volumes in the yen were half of those a day earlier on the EBS trading platform, which some warned could be exaggerating the scale of the moves.

But the concern over the world's growth prospects and the solidity of its banks is palpable. European stock markets were down another 3 percent and have lost 28 percent from peaks last April. Shares in Deutsche Bank fell 8 percent.

Sweden's Riksbank was the latest to respond, cutting interest rates further into negative territory and by more than analysts had expected, driving its crown currency <EURSEK=> more than 1 percent lower before it staged a recovery.

A number of banks have raised the prospect of Japan outright intervening in currency markets, as it last did in October 2011, although most assume it would be a harder sell to global policy forums like the IMF and G20, which generally discourage intervention to weaken currencies.

"It looks like we may head back to direct FX intervention, but that is also hard to justify and may ultimately fail," HSBC analysts said in a note on Wednesday.

Market thinking and moves in the last 24 hours have been dominated by Federal Reserve Chair Janet Yellen, whose testimony to Congress on Wednesday gave investors no reason to change their minds that the next rate hike will be a long time coming.

Sticking largely to the script, Yellen made clear that the U.S. central bank remained on a path of 'gradual' policy tightening, although she also highlighted growing risks facing the economy.

That gave currency investors the green light to continue the current trading theme: buying the safe-haven yen.

By 4.10 a.m. GMT, the dollar was 1.6 percent lower at 111.57 yen <JPY=>, having briefly reached 110.99 yen.

The euro last traded at $1.1313 <EUR=>, up 0.2 percent on the day. The single currency was almost 1 percent higher against sterling <EURGBP=> at 78.38 pence but 1.5 percent down against the yen at 126.22.

(Additional reporting by Jemima Kelly; Editing by Catherine Evans)

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