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USD/JPY halts four-day skid, as Nikkei caps worst week in seven years

Published 02/12/2016, 08:46 PM
Updated 02/12/2016, 08:50 PM
USD/JPY gained 0.71% on Friday to close at 113.22

Investing.com -- The dollar rose sharply against the yen on Friday, halting a four-day losing streak where USD/JPY fell nearly 4%, as panicked investors sought shelter in the safe-haven Japanese currency.

The currency pair traded in a broad range between 111.72 and 113.55 before closing at 113.22, up 0.71% on the session. It came one day after the Yen surged to fresh 15-month highs against the greenback at 110.98, as oil prices plummeted to 12-year lows and investors departed from their positions in risky, high-yield bonds. Over the first two weeks of February, the dollar closed higher against the yen in just two of 10 sessions, plunging more than 6.5% during that span.

USD/JPY likely gained support at 110.98, the low from February 11 and was met with resistance at 123.67, the high from Dec. 3.

The dollar has fallen steadily since surging 2% against the yen on January 29, when the Bank of Japan roiled global currency markets by unexpectedly lowering interest rates into negative territory. At the time, BOJ president Haruhiko Kuroda cited widespread volatility in China, the emerging markets and the global financial markets overall as primary factors for the unprecedented move. The decision garnered significant controversy as four of nine BOJ opposed the move, minutes from the meeting showed.

Over the last two weeks, the yen carry trade has steadily fallen out of favor, amid concerns of falling profits among Japanese banks, the continuing commodity slump and uncertainty related to the Federal Reserve's current tightening cycle. As a result, the waning yen carry trade has provided significant downside pressure against the dollar.

With the European Central Bank's deposit rate already in negative territory, the BOJ's decision marks the first time two of the world's top three central banks have held rates below zero simultaneously. Over the last several months, a host of central banks have adopted Negative Interest Rate Policies (NIRP) as a tool for staving off deflation and bolstering economic growth. Under the policy, central banks charge financial institutions for parking excessive reserves at their banks as a way of spurring lending. Critics of the practice argue that it may either severely restrain the profits of major banks or force them to pass the costs off to customers by increasing fees.

While testifying before the U.S. House of Representatives Financial Services Committee on Wednesday, Fed chair Janet Yellen attempted to soothe markets by hinting that any rate cuts by the U.S. central bank in the coming months are unlikely. Yellen, though, backtracked on Thursday when she told the Senate Banking Committee that the Fed has not taken negative interest rates off the table.

The stronger yen has weighed heavily on Japan's top domestic auto stocks, such as Toyota, which earn most of their profits abroad. On Friday, the Nikkei 225 plummeted nearly 5%, capping its worst week in more than seven years.

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