Daily Morning Report 25.04.2016

The yen hit a three-week low on Monday on expectations the Bank of Japan could start lending to banks at negative rates, while sterling hit a five-week high in reaction to President Barack Obama urging Britons to stay in the European Union.

The yen fell to as low as 111.90 in early trade, its lowest level in more than three weeks but Japanese exporters quickly jumped on it to buy the currency, pushing it back to 111.17, up 0.6 percent from late U.S. levels on Friday.

On Friday, the yen fell 2.1 percent – its biggest fall since the day BOJ Governor Haruhiko Kuroda unleashed his second easing in October 2014 – after Bloomberg reported that the Bank of Japan is considering applying negative rates to its lending program for financial institutions.

The big fall was likely driven by selling from speculators who had held a huge amount of yen long positions. Data on Friday showed that currency speculators held a record yen long position in the Chicago futures exchange last week.

But traders are also wary that further BOJ easing may have limited impact in weakening the yen, as did the introduction of negative interest rates in January.

“I’m a bit skeptical about how long the yen’s slide will continue. Financial markets appear to have a bleak view on the impact of negative interest rates on the economy,” said Kyosuke Suzuki, director of forex at Societe Generale (PA:SOGN).

With much of any further easing already priced in, the yen may have limited room to fall further after the BOJ’s policy meeting on April 27-28, some analysts also said.

“The hurdle for the dollar/yen to rise further has been heightened after the report. If the BOJ comes up with what’s already reported and a bit of stock purchases, that would lead to buy-on-rumour-sell-on-fact  type of dollar/yen selling,” said Minori Uchida, chief FX analyst at the Bank of Tokyo-Mitsubishi UFJ.

The British pound scaled a five-week high of $1.4475 in early trade and last stood at $1.4430, up 0.2 percent from late last week.

The firmness stemmed from hopes that public opinion may tilt in favor of staying in the European Union after U.S. President Barack Obama threw his weight behind the “in” camp.

The pound hit a six-week high against the euro of 77.52 pence per euro (EURGBP=D4).

The common currency was lackluster against the dollar, touching a four-week low of $1.1216 , before recovering to $1.1243, up 0.2 percent from late U.S. levels on Friday.