The yen surged to its strongest level against the euro in more than three years on Tuesday as the chances of Britain voting next week to leave the European Union grew, pushing investors towards the security of Japan and other traditional safe havens.
As polls showed the “Leave” camp moving ahead before the June 23 vote, sterling fell 1 per cent against the dollar compared to late levels in New York but was holding just above two-month lows hit during the day on Monday.
The Swiss franc, another traditional harbour in times of global financial stress, hit a three-month high against the euro, and the dollar was around 0.3 percent higher overall against a basket of currencies.
Ahead of this week’s Bank of Japan meeting, traders say strong resistance around 105.50 yen per dollar has kept the yen from surging towards 100 per dollar — levels which many assume would force the Bank of Japan to intervene against the yen.
The debate now among traders is whether the BoJ will take policy steps on Thursday aimed at weakening the currency, when a vote for a Brexit next week would be expected to drive more buying of the yen globally as a safe haven for capital.
“A lot of people say that the BOJ won’t do anything this week given the context,” said Richard Benson, co-head of portfolio management at currency fund Millennium in London.
“But if the yen is at trade-weighted highs, I wouldn’t be surprised (to see action). If they are looking for a chance to manipulate the currency weaker, a policy meeting would be a natural choice.”
Leave, Remain campaign
While many market players are sceptical about the accuracy of opinion polls ahead of the UK vote, recent results have suggested the “Leave” camp has gained momentum, sending jitters through global financial markets.
A YouGov poll for The Times put “Leave” on 46 per cent support compared with 39 per cent support for “Remain’’. A poll from the same source last week had shown a 1 per cent lead for the “Remain” campaign.
Bookmakers’ odds on a vote to stay in the EU had fallen from 78 per cent last week to just 55 per cent on Tuesday.
Sterling was also half per cent lower against the euro on the day, but slightly stronger compared to Monday’s lows of 79.86 pence per euro.
“Our best guess of a post-Brexit reaction is still that GBP/USD loses 5-10 percent quickly, dragging other European currencies down too,” analysts from Societe Generale said in a note.
“What’s changing this week is that the very near-term outlook around the vote is now more symmetrical. Sterling is now as likely to rally by 10 figures against the dollar in the immediate aftermath of the vote as to fall by 10, depending on the outcome.”
The pound fell 1.2 per cent to 149.85 yen according to Thomson Reuters data, having fallen to around 149.50 yen on Monday.