Currency talk: The curious case of the yen
Jason Walls and ANZ's Sam Tuck discuss the global currency market news. With special audio feature.
In what has been called a “fascinating” turn of events, the Japanese yen strengthened when interest rates went negative last week.
ANZ senior FX strategist Sam Tuck says on the surface this is quite unusual but "looking under the hood, it becomes clearer."
“We’re nearing the end of the period in markets where central banks are the omnipotent presence in markets, backstopping every risk,” he says.
He says when rates drop into negative territory, side effects and distortions can be seen in the economy.
“The markets are strengthening the yen, as they signal they are running to the end of their belief that central bank action is the automatic panacea for markets,” he says.
In the time since the Bank of Japan’s board made the negative interest rate announcement, the benchmark Nikkei index plunged.
Japanese bank stocks have slumped – some by as much as 30% as it is widely expected they will not pass the negative rates on to savers.
While the yen strengthens, the pound has been weakening, given the prospects of the “Brexit.”
The euro has also taken a hit, Mr Tuck says.
“If Britain decides to leave the EU, it brings into question whether that union is irrevocable.
“Britain is not a member of the currency union but is most certainly a member of the wider union,” he says.
He says this is the key issue, as it was the threat of the break-up of the EU during the Greek debt crisis that spooked markets.
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Tue, 23 Feb 2016
Tue, 23 Feb 2016
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Currency talk: The curious case of the yen
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