Yen reach new lows as traders seek higher yields elsewhere
2024.02.22 21:12
Yen reach new lows as traders seek higher yields elsewhere
By Tiffany Smith
Budrigannews.com – The yen continued its downward spiral this week, reaching new lows against the euro, sterling, and other currencies. This marks the fourth consecutive weekly decline against the US dollar as investors seek higher yields outside of Japan. The yen’s weakness is evident in its status as the worst-performing G10 currency this year, with a 6.4% depreciation against the dollar, while the dollar has emerged as the top performer.
Against the euro, the yen fell by 0.6%, touching a three-month low of 163.45 per euro. A similar decline was observed against the British pound, reaching its lowest level since late 2015 at 190.83. The yen also hit nine-year lows against the Australian and New Zealand dollars.
However, the yen’s movements against the dollar were more subdued due to the risk of intervention from Japanese authorities. In recent days, officials have reiterated their readiness to intervene in currency markets if necessary. As a result, the dollar gained a modest 0.1% to trade at 150.41 yen.
The allure of carry trades, where investors borrow yen at near-zero interest rates and purchase higher-yielding assets in other currencies, continues to fuel the yen’s weakness. With market volatility at two-year lows and expectations of deep rate cuts in the US, Europe, and Britain receding, carry trades remain attractive.
Bank of Singapore strategist Moh Siong Sim highlights the focus on carry trades in the current range-bound environment, noting that hopes for a yen rally were dampened by recent data showing Japan’s unexpected recession.
Despite the lack of conviction in the currency world, carry trades continue to entice investors, particularly given the wide yield gap between Japanese and US government bonds. Data reveals a significant increase in yen shorts last week, reflecting investors’ preference for higher-yielding currencies.
The yen’s weakness is expected to persist as investors continue to seek out higher returns elsewhere, with the carry trade narrative remaining a compelling factor in the market.
