Yen Gains as Stocks Slump, Gundlach Says Negative Rates Misfire

The yen is the world’s best performing currency this week as stocks around the world resumed declines, boosting demand for havens and counteracting the Bank of Japan’s negative interest-rate strategy.

Japan’s currency has appreciated at least 1 percent against all its 31 major peers since Jan. 29, when the central bank announced a decision to charge some lenders on excess reserves. It headed for a three-day advance against the dollar as Asian shares extended losses on Wednesday. The greenback held gains on speculation the BOJ’s policy will diverge further from the Federal Reserve.

“Risk sentiment has been one factor behind yen buying,” said Masato Yanagiya, head of foreign-Exchange and money trading at Sumitomo Mitsui Banking Corp. in New York. “The dollar is also facing a broad reversal trend from last year when it was bought on expectations for monetary policy tightening. Such positions are quite huge so dollar selling may continue for a while.”

The yen rose 0.1 percent to 112.47 per dollar as of 9:39 a.m. in Tokyo Wednesday. It appreciated 0.8 percent in New York, after reaching 112.43, its strongest since March 1. Against the euro, the Japanese currency climbed 0.3 percent to 123.70.

Negative rates in Europe and Japan have had the opposite of the anticipated effect on currencies, with both the euro and yen gaining, DoubleLine Capital’s Jeffrey Gundlach, who runs the $56 billion DoubleLine Total Return Bond Fund with Philip Barack, said Tuesday during a webcast. The European Central Bank will set monetary policy Thursday.

Hedge funds and other money managers are building up net long positions on the yen after turning bullish in January, according to data from the U.S. Commodity Futures Trading Commission. Bets the yen will rise outnumbered bearish positions by 59,625 contracts last week, up 13 percent from a week earlier.

--With assistance from Mika Otsuka To contact the reporter on this story: Chikako Mogi in Tokyo at cmogi@bloomberg.net. To contact the editors responsible for this story: Garfield Reynolds at greynolds1@bloomberg.net, Naoto Hosoda, Nicholas Reynolds

By: Chikako Mogi

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