Brexit-Plagued Pound Offers Yen Bulls Haven From Fed Uncertainty

Yen bulls are seeing “Brexit” as a better bet than prospects the Federal Reserve will stay dovish, while they...

Yen bulls are seeing “Brexit” as a better bet than prospects the Federal Reserve will stay dovish, while they seek further gains with Japan’s currency up against all its Group-of-10 peers this quarter.

The yen has been the biggest winner against the pound this year amid speculation last week’s terrorist attack in Brussels will deepen uncertainty over the U.K.’s fate in the European Union. It may advance to 150 per pound after touching its strongest since 2013 late last month, said Masashi Murata, a vice president at Brown Brothers Harriman & Co. in Tokyo.

“If Brexit is seen as part of global risks, selling the pound and buying yen remains attractive,” Murata said. The yen at 150 per pound “is well within sight,” he said.

Japan’s currency has already climbed almost 10 percent against the pound this quarter, according to data compiled by Bloomberg. The yen rose to 154.73 on Feb. 24, the highest since October 2013. It was at 161.69 as of 7:10 a.m. in London.

The level of about 157 is a 50 percent retracement from the range set from 2012 to 2015, while 150 is near where the pound moved in a narrow gap during the middle of 2013. Murata said it was technically possible for the yen to reach 140 as the pound falls faster against the Japanese currency than it does the dollar.

“The trend is clearly downward for pound-yen as the Japanese currency is also strong,” said Jun Kato, a senior fund manager in Tokyo at Shinkin Asset Management. “The pound at 150 yen is very possible. It will be swayed by the Brexit issue.”

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Against the dollar, the yen’s strength will probably be limited after it reached a 17-month high of 110.67 earlier this month, according to Kengo Suzuki, chief currency strategist at Mizuho Securities Co. in Tokyo. It was at 112.39 per dollar on Wednesday.

“As the path toward a U.S. rate hike becomes a reality near the middle of the year, the dollar is likely to approach 116 to 117 yen,” Suzuki said. “Given that the pound is facing a lot of uncertainty, it would be more interesting to bet on the yen being a safe haven amid the EU jitters.”

To contact the reporters on this story: Chikako Mogi in Tokyo at cmogi@bloomberg.net, Hiroko Komiya in Tokyo at hkomiya1@bloomberg.net. To contact the editors responsible for this story: Garfield Reynolds at greynolds1@bloomberg.net, Naoto Hosoda

By: Chikako Mogi and Hiroko Komiya

©2016 Bloomberg News

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