JPY: Supported by Numerous Factors - MUFG
Derek Halpenny, European Head of GMR at MUFG, notes that the yen is stronger versus most G10 currencies this morning as upside pressure persists with numerous factors set to keep the currency underpinned.
“Some escalation of Brexit fears in recent days is probably set to continue through to the referendum on 23rd June with GBP/JPY a big mover on a year-to-date basis. The yen is the best G10 currency performer so far this year, up 7.3% while the pound is the worst, down 5.6%. The GBP/JPY rate looks set to break the April low of 152.10, taking the pair back to levels we haven’t seen since August 2013. The polls have tightened somewhat as you might have expected and the strategy of the ‘Leave’ campaign to focus more on the immigration issue looks set to continue. In a 30-minute live TV Q&A session last night PM Cameron spent nearly half that time addressing questions on immigration. Hence, a degree of risk aversion is set to persist, helping support the yen.
Data released today from Japan served to remind market participants of one of the reasons why the yen is performing well in current uncertain circumstances. Japan’s current account surplus did narrow on a seasonally adjusted basis in April from March but on a non-seasonally adjusted basis the current account surplus jumped from JPY 1326bn in April 2015 to JPY 1879bn in April 2016, a near 42% jump. On a year-to-date basis the current account surplus totalled JPY 7815bn, up from JPY 5699bn last year, a 37% jump. As highlighted before, the current account surplus in Q1 amounted to some 4.6%, approaching record pre-crisis levels. With the Fed now side-lined, the cost of hedging portfolio investment outflows for Japanese investors will remain cheaper for longer resulting in less support for USD/JPY on a net basis.”