Yen rises as carry trades ease, risk sentiment takes a hit

SINGAPORE (Reuters) – The yen was supported on Thursday by the unwinding of carry trades ahead of the Bank of Japan (BOJ) policy meeting next week and as a rotation out of mega-cap growth stocks dampened risk appetite overall and prompted some safe-haven bids.

The Australian and New Zealand dollars continued to struggle on weak commodity prices, the euro fell on a dismal purchasing managers’ index (PMI) and the dollar held steady ahead of US growth figures later in the day.

The yen rose more than 0.5% to an intraday high of ¥152.835 per dollar, a 2½-month high, as traders abandoned short-yen bets ahead of the BOJ’s July meeting, where a rate hike remains on the agenda.

Sources told Reuters the central bank is likely to discuss next week whether to raise interest rates and present a plan to roughly halve bond purchases over the next few years, a move that would signal a determination to gradually unwind the massive monetary stimulus.

“The threat of a tapering of JGB purchases and the rate hike certainly seems to be fueling the concerns we have seen there in the dollar/yen and yen crosses,” said Tony Sycamore, chief market analyst at IG.

“It is also a fact that risk sentiment is deteriorating, and that has helped [the yen] and also… I think it’s just a perfect storm right now. You’ve got the tech trade unwinding, you’ve got the carry yen trade unwinding… you’ve got the Nikkei, too, unwinding.”

The Japanese currency also remained near a 2½-month high against the euro, while the pound remained near a month-low, last trading at ¥198.41.

Japanese Finance Minister Shunichi Suzuki and top currency diplomat Masato Kanda both declined to comment on the yen’s recent surge.

On the broader market, the dollar was on the rise, receiving some safe-haven support after Wall Street closed sharply lower on an ongoing rotation out of technology stocks.

The euro fell 0.02% to $1.0837, helped by Wednesday’s PMI survey, which showed growth in eurozone economic activity stagnated this month, pointing to a bleak outlook for the EU.

The pound fell 0.09% to $1.2895, while the dollar index was virtually unchanged at 104.37.

Traders have their eyes on the second-quarter U.S. growth figures later on Thursday. However, the outcome is unlikely to have a major impact on expectations for rate cuts from the Federal Reserve this year, with a move in September already fully priced in.

In Australia, the Australian dollar fell to its lowest level since early May at $0.65575 as falling commodity prices continued to weigh on the currency.

The New Zealand dollar also fell 0.24% to $0.5915.