Yen edges up, mood still
shaky after bond sell-off
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[September 15, 2016]
By Patrick Graham
LONDON (Reuters) - The yen inched
higher on Thursday with investors seeking safe havens as stock
markets hit two month lows, although major currency pairs were
otherwise little changed after the first of a batch of major central
bank policy decisions.
The Bank of Japan and U.S. Federal Reserve both meet next week after
the Swiss National Bank and the Bank of England both held fire with
any further moves to support growth or weaken their currencies on
Thursday.
The yen move came despite an easing of tensions on bond markets
which have dominated the past week. Traders said sales of emerging
market currencies by CTAs - largely model-based quantitative funds -
continued to dominate trading by the bigger desks.
"Despite yesterday's stability in global bonds, FX seems to be
trading risk-off," said Richard Benson, co-head of portfolio
management at London-based currency fund Millennium Global.
"The problem with CTA money is that they are model-based so once
they flick a switch it can go on for days. Clearly they had large
exposures in emerging FX and that has been unwinding."
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Concerns about the policy effectiveness of the world's major central
banks have triggered a steepening trend in bond yields since last
Thursday and the yen's gains also looked like a vote against the
Bank of Japan's ability to weaken the currency.
Sterling inched down marginally after the Bank of England's
decision. The minutes from the meeting were read as showing
officials slightly less pessimistic on the outlook for the economy
than they were a month ago, adding to support for the pound at
around $1.32.
Sources familiar with the Bank of Japan's thinking said the central
bank will consider making negative interest rates the focus of its
future easing by shifting its prime policy target to interest rates
from base money.
There is no consensus in the BOJ yet on whether to deepen negative
rates at the Sept. 20-21 meeting, when it conducts the comprehensive
assessment of its policies, the sources said.
"They are just running out of firepower and everyone knows it," said
the head of currency and fixed income trading at one major U.S.
asset manager in London, asking not to be named.
"I am a 95 yen (per dollar) man."
The dollar edged down 0.2 percent to 102.24 yen <JPY=>, moving away
from a one-week high of 103.35 yen touched overnight.
"I was a bit surprised yesterday. I thought the yen might have been
a little stronger, due to the risk-off mood," said Masashi Murata,
currency strategist for Brown Brothers Harriman in Tokyo.
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![](../images/091516pics/busine13.jpg)
A picture illustration shows Japanese 10,000 yen notes featuring a
portrait of Yukichi Fukuzawa, the founding father of modern Japan,
August 2, 2011. REUTERS/Yuriko Nakao/File Photo
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"But maybe the BOJ news had an effect. It's hard to say what will happen next
week," he said.
The Fed also meets on Sept. 20-21, and contrasting comments from U.S.
policymakers have led to uncertainty about the monetary outlook.
While U.S. interest rate futures indicate expectations for an actual rate
increase next week remain low, the dollar could get a lift from anything in the
Fed's statement that hints at a hike this year.
The euro edged down slightly to $1.1242, and also slipped 0.2 percent against
its Japanese counterpart to 114.98 yen .
The dollar index, which tracks the U.S. unit against a basket of six major
rivals, was a touch higher at 95.508 <.DXY>, after wobbling in a narrow range
this week between a low of 94.935 on Monday and a high of 95.672 on Tuesday.
Sterling dipped 0.2 percent to $1.3218 <GBP=>, having hit a two-week low of
$1.3139 hit overnight, as investors awaited a Bank of England policy decision.
An appearance by Mark Carney and colleagues in parliament last week suggested
the Bank would look through an improvement in some economic data which has given
the pound support since it cut interest rates to record lows and reintroduced an
asset-purchase program in August.
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Switzerland's central bank on Thursday held its negative interest rates at
record low levels despite mounting criticism that the policy has hurt banks and
pensions.
(Additional reporting by Lisa Twaronite in Tokyo; Editing by Toby Chopra and
Alexander Smith)
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