Hedge funds and other large speculators boosted bullish-yen wagers to the highest since at least 1992 as Japan’s currency struggled to extend its gains into a seventh day.
The yen advanced to a fresh 17-month high earlier on Monday after speculators defied rhetoric from Japanese authorities aimed at checking its advance. Chief Cabinet Secretary Yoshihide Suga reiterated that officials are watching the foreign-exchange market “with vigilance,” and will take appropriate action if necessary. Deutsche Bank AG and Bank of Singapore Ltd. said the yen remains at or below fair value.
“The yen is nowhere near overvalued,” making it hard to justify intervention, said Sim Moh Siong, a foreign-exchange strategist at Bank of Singapore Ltd. “Even though the yen has moved quite substantially against the dollar, you look at yen relative to euro and other currencies, it hasn’t really strengthened all that much.”
The yen was little changed at 108.13 per dollar as of 10 a.m. in London, after advancing to 107.63, the strongest level since Oct. 27, 2014. Its six-day winning streak through Friday was the longest in a year. A seventh day would have been its best run since September 2012.
Japan’s currency jumped 3.4 percent versus the dollar last week and has appreciated against all its 16 major peers this year as investors flock to haven assets amid a rout in stocks around the world. The yen was little changed Monday at 123.18 per euro, and last week reached the strongest level in a month.
A measure of purchasing power parity from the Organisation for Economic Co-operation and Development suggests the Japanese currency is still almost 2 percent undervalued versus the dollar.
“Japan’s biggest problem with the current yen rally is that it is justified by fundamentals,” George Saravelos, a strategist at Deutsche Bank in London, wrote in a client noted dated April 11.
Speculators increased bets on yen gains against the dollar to 98,130 contacts in the week ended April 5, the most in Commodity Futures Trading Commission data starting in 1992. In mid-December, bullish yen contracts were at a 10-month low of 26,400.
The yen’s surge last week pushed up global currency volatility, with a JPMorgan Chase & Co. index approaching the highest since 2011. Price swings accelerated after the yen climbed past 110 per dollar for the first time in 17 months, fueling speculation the central bank would intervene to weaken it.
“The yen can appreciate in the short term, but the market is extremely long,” said Steve Brice, chief investment strategist at Standard Chartered Plc in Singapore. It may strengthen to 106 per dollar, “and then the Bank of Japan may come in and intervene, and push it back beyond 110,” he said.