The yen rose on Tuesday to its highest against the dollar since November 2014, as a sell-off in global stocks and worries about Europe's banks stoked demand for safe-haven currencies.
The euro underperformed. Although it has enjoyed a good correlation with safe-haven assets and currencies since last August, it dropped to its lowest in nearly two weeks against the yen and the Swiss franc, another safe haven, Reuters reported.
Europe's banking index fell 1% and yields on southern European government bonds rose, pushing the euro lower against the dollar to $1.12. The euro was also hurt in part by weak German industrial output, which fell unexpectedly in December.
The yen, though, was in the limelight for the second day, gaining around 6% since the start of February against the dollar. The rise has undermined plans by the Bank of Japan, which wants to generate inflation through negative interest rates and a weaker currency.
"The BOJ must be disappointed, given that just two weeks after it announced negative rates, the currency has risen 6% and offsetting the impact of almost all its actions," said Niels Christensen, FX strategist at Nordea. "As long as global stocks remain under pressure, we expect the yen to gain."
The dollar was last at 115.15 yen, down 0.6%, after dropping as low as 114.20 in Asian trade. The euro was down 0.7% at 128.80 yen.
"European funds have been selling dollar-yen since this morning, and it broke through the barrier options around 115," said Kaneo Ogino, director at foreign exchange research firm Global-info Co in Tokyo.
The Swiss franc rose to 0.98 against the US currency, its highest since December. It was also 0.3% higher against the euro, trading at 1.10235 francs per euro.
Caught Off-Guard
Yen strength was probably not what the Bank of Japan hoped would occur in the wake of its decision last month to adopt negative interest rates, but it’s happened, FT reported.
The move comes amid a sharp sell-off for bank stocks in Japan and Australia, which have mirrored from heavy falls in the US and Europe overnight.
Before the Bank of Japan caught markets off-guard on December 29 with its decision to adopt negative interest rates, one dollar bought ¥118.82. Following the BoJ’s move, the yen weakened by 2%, but it regained that drop in the subsequent three sessions.
Haruhiko Kuroda said last week there was “no limit” to monetary easing as he vowed to cut Japanese interest rates deeper into negative territory if necessary. That has caused Japanese bond prices, which move inverse to yields, to rise as investors anticipate more asset purchases by the BoJ.
Among major global currencies, the yen is now the best performer against the US dollar, up 4.3% in 2016.
