Yen finds its footing as markets wobble, investors turn risk-off

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By Gregor Stuart Hunter

SINGAPORE (Reuters) -The yen rebounded from its weakest level against the dollar in more than nine months in Asian trading on Tuesday as receding expectations that the Federal Reserve would cut interest rates next month sparked a broad risk-off move across assets.

The U.S. currency sank 0.3% against the yen to 154.885 amid a selloff in equity markets, gold and bitcoin, as investors looked for refuge from the downturn.

Gold, a traditional safe-haven, was facing pressure on reduced expectations of an imminent Fed rate cut.

The yen “remains below the psychological 155 level for now, but risks are accentuated,” analysts from DBS wrote in a research report. The likelihood of elevated volatility, and potential currency market intervention “could be higher than usual,” they added.

Japanese Prime Minister Sanae Takaichi is due to meet Bank of Japan Governor Kazuo Ueda later on Tuesday. A proponent of expansionary fiscal and monetary policy, Takaichi has filled seats in key government panels with advocates of big spending backed by low interest rates – policies that work to depreciate the yen’s value.

Japan must compile a stimulus of around 23 trillion yen, Goushi Kataoka, a private-sector member of a key government panel, told Reuters on Monday. That would far exceed the 17-trillion-yen package previously reported by the Nikkei newspaper, stoking fresh market anxiety over the supply of new government debt that bond markets would have to digest.

The yield curve for Japanese government bonds steepened further on concerns about the size of Takaichi’s stimulus package, with 20-year yields reaching a 26-year high.

The recent moves in the yen prompted Japanese Finance Minister Satsuki Katayama to express concern at a regular news conference on Tuesday.

“As we have recently been seeing one-sided, rapid moves in the foreign exchange market, we have been alarmed,” she said, in remarks reflecting broader worries about the negative economic implications of a weak yen.

The yen had earlier reached 155.37, the Japanese currency’s weakest level since February 4 this year, ahead of the release of delayed U.S. payrolls data for September due on Thursday.

Fed funds futures are pricing an implied 43% probability of a 25-basis-point cut at the U.S. central bank’s next meeting on December 10, down from a 62% chance a week ago and bets that a cut was a near-certainty a month ago, according to the CME Group’s FedWatch tool.

The dollar index, a measure of the U.S. currency against major rivals, was last 0.1% weaker at 99.448, resuming declines after snapping a four-day losing streak on Monday. “The theory is, if there is a hold in December, it’s only a temporary halt,” analysts from ING wrote in a research report. “Hard data releases ahead will have the final say, including some tolerance for weak employment data given the supply-side shocks.” Federal Reserve Governor Christopher Waller and Fed Vice Chair Philip Jeffersson, speaking on Monday, highlighted risks to the U.S. labour market.

Investor confidence took a hit overnight, pulling down all three major U.S. stock indexes and boosting safe havens in Asian trading on Tuesday. The Swiss franc, along with the yen, drew safe-haven bids to advance 0.2% on the dollar.

The yield on the U.S. two-year Treasury bond was down 3.3 basis points at 3.5745%, while that on the 10-year note slid 2.2 basis points to 4.1095%. The euro added 0.1% to $1.1599, snapping a three-day losing streak.

The Australian dollar was down 0.2% at $0.64785 after minutes from the Reserve Bank of Australia’s November 3-4 policy meeting showed the central bank judged the current cash rate of 3.6% as being slightly restrictive, but said it was possible this was no longer the case, citing a jump in housing credit to investors. The British pound was steady at $1.3157, while the New Zealand dollar eased 0.1% to $0.56475.

(Reporting by Gregor Stuart HunterEditing by Shri Navaratnam)