With the Bank of Japan holding off further stimulus and concerns over the “Brexit” vote fueling safe-haven bets, the Japanese yen and currency-related exchange traded funds surged Thursday.
On Thursday, the CurrencyShares Japanese Yen Trust (NYSEArca: FXY) jumped 1.6% while the ProShares Ultra Yen (NYSEArca: YCL), which tries to reflect the daily 2x or 200% return of the the U.S. dollar price of the yen, increased 1.7%. Year-to-date, FXY rose 13.2% and YCL gained 27.8%.
The yen currency appreciated to ¥104.22 per U.S. dollar on Thursday, its highest level in almost two-years.
The yen currency strengthened after the Bank of Japan said it would wait on taking further action until the results of the British referendum or so-called Brexit vote next week, the Wall Street Journal reports.
People close to the BOJ hinted that even if the central bank acted this week, the market impact may be limited if a Brexit vote sent shocks around global markets.
The JPY, which has traditionally acted as a global safe-haven play in times of duress, could continue to appreciate if the Brexit vote passes and drags on financial markets.[related_stories]
Economists have largely expected the BOJ to take aggressive action, especially since BOJ Gov. Haruhiko Kuroda has repeatedly promised to take action “without hesitation” if the central bank’s 2% inflation target is in danger. The Japanese central bank also took no action in April when expectations for further loosening were high.
“There is nothing in recent economic indicators that would lead the BOJ to change its economic outlook now,” Norio Miyagawa, senior economist at Mizuho Securities, told Reuters. “However, the rising yen will place more downward pressure on consumer prices, so I expect the BOJ to ease in July, using all three dimensions of its current policy framework.”
Yen currency traders will have to watch for the Brexit ahead and further strengthening in the safe-haven currency.
“If the British referendum pushes the yen above 100 to the dollar, the BOJ would ease further given damage it would cause to exporters’ profits,” Hideo Kumano, chief economist at Dai-ichi Life Research Institute, told Reuters.
For more information on the yen currency, visit our Japanese yen category.
CurrencyShares Japanese Yen Trust