Aussie touches highs against yen in hunt for yield

Good night for the Aussie dollar: The local currency also gained against the greenback. Good night for the Aussie dollar: The local currency also gained against the greenback.
南京夜网

Good night for the Aussie dollar: The local currency also gained against the greenback.

Good night for the Aussie dollar: The local currency also gained against the greenback.

The Australian dollar has risen to fresh highs against the yen as Japan looks to delay a planned tax hike at a time when its latest bout of money printing stimulus increases investor appetite for the higher yielding local currency.

The Aussie dollar rose 1.35 per cent against the yen overnight and is buying 100.39 yen. It is the first break above the 100-mark since early April last year, when the Aussie traded as high as 105.06 yen.

The Australian dollar also gained on the greenback, up 0.9 per cent to buy 86.97 US cents. It did briefly rise to 87.02 cents before pulling back.

The US dollar hit a fresh high against the yen to 116.09 – its highest since October 2007 when it rose to 123.16 yen. It was last trading at 115.44 yen. The greenback has gained around 10 per cent against the yen so far this year.

The trigger for the Aussie dollar’s surge against the yen and greenback follows hopes that Japanese Prime Minister Shinzo Abe may delay a planned 10 per cent sales tax increase, which is designed to help rein in public debt and support the struggling economy.

The yen, like the US dollar, is typically seen as a safe-haven currency and often struggles when Japan’s local stock market rise as investors sell yen and US dollars to buy riskier assets.

The Nikkei hit a new seven-year high overnight on the news. There have also been reports that Japan’s Prime Minister might call a snap election before the end of this year if he decides to delay the tax increase.

“If it were to happen, that decision would be justifiably negative [for the yen], to the extent that it would further deteriorate an already ugly fiscal picture,” said Bank of New Zealand currency strategist Raiko Shareef. “The yen is the only G10 currency to be weaker against the [US dollar] this morning, having softened 0.5 per cent to 115.4.”

Westpac’s chief currency strategist Robert Rennie and UBS chief economist Scott Haslem predicted last week that the Australian dollar would gain on the yen helped by greater stimulus from the Bank of Japan and potentially from the European Central Bank.

US stocks weakened overnight as investors took note of events offshore and worries about global growth.

Australian shares are expected to dip 5 points or 0.10 per cent when the market resumes trading on Wednesday.

Japanese investors have also been large buyers of Aussie dollars, fueled by the carry trade, meaning higher returns as a result of higher comparative interest rates in Australia – currently at 2.5 per cent – compared to zero in Japan.

Despite trading higher overnight, the Australian dollar has weakened against the US dollar in response to the end of the US Federal Reserve’s asset purchase program in October. The Aussie is 7.5 per cent lower against the greenback from the start of September when it was buying 93.3 US cents.

The yen has also weakened against the US dollar over this period, particularly after the Japanese central bank also announced in late October that it would expand its huge stimulus program. The greenback has surged over 6 per cent since then against the Japanese currency.