Marine Le Pen may be about to undo the Donald Trump effect, at least when it comes to the yen.<\/p>\n
The currency is advancing toward 105 per dollar, a level last seen just after U.S. voters unexpectedly elected Trump in November. One-month risk reversals show traders are about the most bullish on the yen since June, while speculators have resumed bets the Japanese currency will strengthen.<\/p>\n
Long seen as a haven because of Japan\u2019s current-account surplus, the yen has been bolstered this year by geopolitical tensions from lingering Brexit concerns and anxieties that the Le Pen will pull off another populist shock, to Trump\u2019s attack on Syria and his confrontations with North Korea. Risk events in coming days include the first round of the French election on Sunday and the 85th anniversary of the foundation of North Korea\u2019s military on Tuesday.<\/p>\n
\u201cThe yen is likely to rise further in the next few days ahead of Sunday\u2019s French election and towards April 25 with the potential that North Korea conducts a nuclear test or declines to heed China\u2019s diplomatic efforts,\u201d said Jun Kato, a senior fund manager at Shinkin Asset Management Co. in Tokyo. \u201cIt wouldn\u2019t be surprising to see the yen hit 105 as fading expectations for Trump spur markets to realize they were too aggressive in buying dollars.\u201d<\/p>\n
The yen climbed to a five-month high of 108.13 per dollar on Monday following Trump\u2019s\u00a0comment that the dollar was getting too strong and after an unexpectedly-poor U.S. inflation report. Implied volatility in the dollar-yen currency pair jumped to a three-month high the same day. The currency traded at 109.27 per dollar on Friday.<\/p>\n
One-month risk reversals showed traders are growing increasingly bullish on Japan\u2019s currency, with the cost to protect against yen gains\u00a0relative to that insuring against declines climbing to the highest since June. Three-month risk reversals show traders remain skeptical the current gains will last.<\/p>\n
\u201cNorth Korea is the primary factor near-term that is putting pressure on the yen to rise,\u201d said Daisaku Ueno, chief currency strategist at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo. \u201cWhat markets detest the most is a situation with no end in sight. A prolonged period of uncertainty inevitably weighs on psychology. If tension heightens further in the near term, the yen could rise towards 106.\u201d<\/p>\n
Ueno said military action may spur a massive surge in the yen, citing its jump of around 4 percent on Jan. 17, 1991, the day the U.S. began its aerial bombing campaign against Iraq.\u00a0That would mean a 4 to 5 yen move higher is possible from current levels, he said, adding that markets may test two key resistance points based on dollar-yen highs from last year — the level of 107.50 set on July 21 and 105.50 reached on Oct. 28.<\/p>\n
France will hold the first round of its Presidential election on Sunday, with polls showing a tight race between four candidates. Le Pen has threatened to take the country out of the EU, while Jean-Luc Melenchon wants to renegotiate the bloc\u2019s treaties, including the one that keeps the country in the euro. Polls showed Emmanuel Macron would defeat any of his rivals in the runoff scheduled for May 7, as long as he can get there.<\/p>\n
\u201cDollar-yen is top-heavy ahead of the French election,\u201d said\u00a0Yuji Kameoka, chief foreign-exchange analyst at Daiwa Securities Co. in Tokyo \u201cIf centrists lose in the first round of the vote, the yen could gain beyond 107, with 105 levels coming in sight. The upside risk through the first week of May is around 105, but yen appreciation pressure may stay if sentiment remains cautious about risk.\u201da<\/p>\n
Source: Bloomberg<\/p>\n","protected":false},"excerpt":{"rendered":"
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