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Yen surges with Japan, U.S.’s hands tied by Brexit worries

  • June 17, 2016
  • , Yomiuri , p. 3
  • Translation

By economic reporters Tomoko Hatakeyama, Miyuki Yoshioka


The yen exchange rate on June 16 surged by more than 2 yen to the 103-yen-to-a-dollar level with the Bank of Japan (BOJ) and the U.S. Federal Reserve Board (FRB) both foregoing monetary policy changes. In light of growing concerns about the UK’s exit from the European Union (EU), the central banks of Japan and the U.S. have decided to adopt a wait-and-see approach. Taking advantage of market vulnerability, speculators rushed to buy yen. Uncertainty in the market is unlikely to cease until the British referendum on June 23.


As soon as BOJ Governor Haruhiko Kuroda started his news conference after the BOJ board members’ meeting on monetary policy after 3:30 p.m., the yen strengthened against the dollar to 103.56 yen, the highest mark since August 2014. Trading had been light because market players were watching Kuroda’s news conference, after which “hedge funds and other speculators rushed to buy yen,” according to an analyst.


The FRB had also decided to forego further interest rate increases in the predawn hours of June 16 (Japan time). After the BOJ also opted for maintaining the status quo before noon, the market quickly moved toward yen buying and dollar selling.


With the surge in the value of the yen, prices on the Tokyo Stock Exchange plunged in the afternoon, resulting in a situation of yen appreciation coupled with a slump in stock prices.


Serious worries about the UK’s exit from the EU were behind the Japanese and U.S. monetary authorities’ decision. FRB Chairperson Janet Yellen explained at a news conference that Brexit “was discussed as a factor of uncertainty that may affect the world economy and the monetary environment.” It appears that the BOJ board meeting also took up Brexit risks.


If British citizens vote to leave the EU, concerns about the European economy will be aggravated. This will lead to selling of the euro and the British pound, and investors’ stronger desire to hedge risks is expected to result in further yen buying, i.e. yen appreciation.


Economic slowdown in Europe coupled with a strong yen may adversely affect business results of Japanese exporters, leading to a further downward slide in stock prices.


The FRB is holding its next meeting on July 26 and the BOJ on July 28-29 to discuss monetary policy. It is reckoned by some that if a majority of UK citizens vote for bolting the EU, “the yen rate may touch the 99-yen-to-a-dollar level temporarily and the Nikkei stock average may approach the 14,000 yen mark,” according to Mitsubishi UFJ Morgan Stanley’s Seiichi Miura.


Kuroda stressed at his news conference that he is cooperating closely with foreign central banks. During the Lehman Shock of 2008, the G7 finance ministers and central bank governors’ meeting had adopted detailed policies to stabilize the financial markets, and the Japanese, U.S., and European central banks had made concerted efforts to supply liquidity to the market.


Japan and the U.S. have both judged that monetary policy changes would be unwise this time. The market is watching their next moves. (Slightly abridged)

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