Yen rises over 0.5% as carry trades unwind, risk sentiment takes a hit

The yen drew support from unwinding carry trades on Thursday ahead of next week's Bank of Japan (BOJ) policy meeting and as a rotation out of megacap growth stocks dampened risk appetite broadly and provided some safe haven bids.

The Australian and New Zealand dollars continued to struggle on weak commodity prices, the euro flopped in the wake of a dour purchasing managers' index (PMI) reading while the dollar held steady ahead of US growth figures later in the day.

The yen rose more than 0.5 per cent to an intraday high of 152.835 per dollar, its strongest in 2-1/2-months, as traders abandoned short yen bets in the run up to the BOJ's July meeting, where a rate hike remains on the cards.

 

Sources told Reuters that the central bank is likely to debate whether to raise interest rates next week and unveil a plan to roughly halve bond purchases in coming years, signalling its resolve to steadily unwind its massive monetary stimulus.

"The threat of a taper of JGB purchases and the rate hike certainly seems to be driving that concern which we've seen there in dollar/yen and yen crosses," said Tony Sycamore, a market analyst at IG.

"It's also the fact that risk sentiment is deteriorating, and that's helped (the yen) as well... I think it's just a perfect storm at this point of time. You've got unwind in the tech trade, you've got unwind in the carry yen trade...you've got the Nikkei, as well, unwinding."

The Japanese currency similarly held near its strongest level in 2-1/2-months against the euro, while sterling languished near an over one-month low and last bought 198.41 yen.

Japanese Finance Minister Shunichi Suzuki and top currency diplomat Masato Kanda both refrained from commenting on the yen's recent sharp rise.

In the broader market, the dollar was on the front foot, drawing some safe haven support from a bout of risk aversion after Wall Street ended sharply lower amid an ongoing rotation out of technology stocks.

The euro eased 0.02 per cent to $1.0837, further pressured by Wednesday's PMI survey which showed growth in euro zone business activity stalled this month, pointing to a gloomy outlook in the bloc.

Sterling fell 0.09 per cent to $1.2895, while the dollar index was little changed at 104.37.

Traders have their eye on second-quarter U.S. growth figures later on Thursday, though the outcome is unlikely to significantly alter bets for Federal Reserve rate cuts this year, with a September move already fully priced in.

Down Under, the Australian dollar slid to its weakest level since early May at $0.65575, as it continues to be dragged by falling commodity prices. [MET/L]

The New Zealand dollar similarly fell 0.24 per cent to $0.5915.