Yen Surges to 15-Month High as Intervention Speculation Deepens

(Bloomberg) -- The yen rose to its highest since October 2014, intensifying speculation the Bank of Japan may intervene to arrest gains that threaten to undermine almost three years of monetary stimulus.

The Japanese currency rose versus all 16 of its major peers as a drop in global stocks and oil boosted demand for havens. The yen sharply pared its advance at about 7:20 a.m. in New York before resuming gains. The central bank made “rate check” calls to some banks with implicit questions on whether they planned to buy more yen, Sassan Ghahramani, head of SGH Macro Advisors, said in a note.

With global policy makers deploying unprecedented easing to boost growth, currencies have become an increasingly important channel for translating stimulus into more competitive exports and higher inflation. With the yen close to its level before a surprise expansion of stimulus in October 2014, traders are debating whether the central bank will step in to curb its strength. The BOJ hasn’t intervened in currency markets since 2011.

“There may be a case for a variable or a small amount of intervention” based on the speed of moves over the last few days, said Ken Dickson, the Edinburgh-based investment director of currency at Standard Life Investments, which has about $390 billion under management. “Defending a specific level would not be acceptable to the general authorities around around the world, but managing volatility might be.”

Dickson said sees the yen gaining in the near term from further bouts of risk aversion.

The yen added 0.8 percent to 112.42 per dollar as of 5 p.m. in New York, after touching 110.99, the strongest level since Oct. 31, 2014 -- the day of the BOJ’s stimulus boost. The yen was at 109.21 the day before officials acted. Japanese markets were shut for a public holiday Thursday.

Haven Appeal

The yen has rallied against all of the more than 150 currencies tracked by Bloomberg this year, amid concern about a slowdown in global growth and the credit quality of corporate borrowers.

Checking rates is sometimes intended to send a “strong warning shot” to markets that intervention may be on the way, SGH’s Ghahramani wrote in the note.

The nation’s currency chief Masatsugu Asakawa told Bloomberg on Thursday that the authorities are watching markets, reiterating comments by Finance Minister Taro Aso earlier this week. Swiss National Bank President Thomas Jordan, meanwhile, said in an interview with Bilanz magazine that policy makers there are prepared to intervene in foreign-exchange markets. The Swiss franc touched a three-month high.

Investors anticipate bigger price swings in the yen in coming days, with one-week implied volatility climbing to a two- and-a-half-year high of 21.9 percent, data compiled by Bloomberg show. One-month and three-month price swings also rose to the highest since July 2013.

HSBC Holdings Plc warned this week of a growing risk that the BOJ will step in to sell yen or cut interest rates. Morgan Stanley sees authorities limiting themselves to warning investors against pushing the exchange rate too far.

“They are going to have to do something soon,” said Jennifer Vail, head of fixed-income research in Portland, Oregon, at U.S. Bank Wealth Management, which oversees $128 billion.“But I’m not sure at this point that the move is enough to incent the BOJ to intervene directly with the currency.”

--With assistance from Netty Ismail, Candice Zachariahs and Anchalee Worrachate.

To contact the reporter on this story: Rachel Evans in New York at revans43@bloomberg.net To contact the editors responsible for this story: Boris Korby at bkorby1@bloomberg.net Paul Cox, Michael Aneiro