(Bloomberg) -- The yen rallied Friday, consolidating on its biggest move in nearly a year as traders ramp up bets that the Bank of Japan will scrap the world’s last negative interest-rate regime as soon as this month.
The currency advanced 1% against the dollar, after briefly jumping almost 4% on Thursday to a four-month high in New York. The outsized move in the previous session may have been amplified by speculators closing bearish wagers on the yen, after leveraged funds boosted these to the highest level in more than a year last week.
“Yen-short positions may have been liquidated considerably,” said Yukio Ishizuki, senior currency strategist at Daiwa Securities Co., who added that stop-loss trades were also likely triggered. “Soft US jobs data later today may spur more dollar selling, with 141 for the yen in sight again.”
It traded at 142.79 as of 10:09 a.m. in Tokyo.
Comments from BOJ Governor Kazuo Ueda earlier Thursday, along with remarks from one of his deputies on Wednesday, jolted financial markets in Tokyo and globally. The sharp push for the yen saw it appreciate against all of its peers in the Group of 10 on Thursday.
Economists increasingly expect the central bank to achieve its inflation target, while remaining less aggressive than traders in expectations for how soon the BOJ will move. A growing majority of economists forecast that the negative rate regime will end by April, according to a Bloomberg survey.
They are focused on whether Ueda gives any indication of changes to come in a policy statement or at his press conference following the next decision on Dec. 19, rather any outright change in settings that soon.
Read more: Two-Thirds of BOJ Watchers Expect End of Negative Rate by April
“The odds of tightening administered rates on Dec. 19 are still a bit of a long shot,” said Bipan Rai, CIBC’s global head of foreign-exchange strategy in Toronto. “In conjunction with greater certainty that the Federal Reserve is done with rate hikes, the risk-reward of USD/JPY longs has shifted materially.”
Leveraged funds boosted their net-short position in the yen to 65,611 contracts in the week ending Nov. 28, the most since April 2022, according to Commodity Futures Trading Commission data.
The yen’s rally Thursday was the biggest since the BOJ blindsided investors in December last year after then Governor Haruhiko Kuroda doubled the cap on 10-year yields, sparking bets on policy normalization.
Ueda, who took the helm in April, has maintained cautious approach and gradually widened the yield-curve control this year. He’s kept ultra-loose monetary in place at a time when other major central banks were increasing interest rates to contain global price growth.
BOJ officials have said the bank is not confident enough yet about attaining the price goal of stable inflation at 2% accompanied by wage growth.
Data released Friday showed labor cash earnings increased more than expected in October, up 1.5% on year compared with the median estimate of 1% in a Bloomberg survey of economists. Still, real cash earnings dropped for 19th straight month.
The yen is still down about 8% against the greenback this year, the second worst performance among G-10 peers.
--With assistance from George Lei, Yumi Teso and Daisuke Sakai.
(Updates with yen’s 1% move Friday.)
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