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Swiss Franc Fallout Helps Send Yen Climbing Against Euro

By Hiroko Komiya and Kevin Buckland Jan 16, 2015 The yen advanced to the strongest level in three months against the euro after the Swiss National Bank roiled financial markets by unexpectedly scrapping the franc’s cap, spurring demand for safer investments. Japan’s currency headed for its biggest weekly gain versus the euro since May 2011 amid speculation the European Central Bank will announce bond buying next week. The franc fell about 3 percent today versus the dollar and euro after surging as much as 38 percent versus the greenback and 41 percent against the common currency yesterday. A gauge of foreign-exchange volatility climbed to the highest in more than a year. “With the Swiss central bank’s policy shift, the euro slid and the franc surged, creating a spike in volatility and that’s led to a risk-off trade,” said Kengo Suzuki, chief currency strategist at Mizuho Securities Co. in Tokyo. “The yen is being bought amid this risk-off mood.” The yen fell 0.2 percent to 135.40 per euro at 1:50 p.m. in Tokyo after appreciating to 134.71, the strongest since Oct. 16. It has gained 3.6 percent this week. Japan’s currency dropped 0.2 percent to 116.40 per dollar after advancing to 115.86, the highest since Dec. 16. The euro was little changed at $1.1634. The franc dropped 3.5 percent to 1.0094 per euro after surging to a record 85.172 centimes yesterday. Switzerland’s currency fell 3.3 percent to 86.78 centimes per dollar. Cap Dismantled The Swiss central bank surprised markets at its policy meeting yesterday by abandoning its three-year-old cap of 1.20 per euro on the franc. Policy makers also reduced the interest rate on sight deposits, deepening a cut announced less than a month ago. “The fallout from this is not finished yet,” Richard Yetsenga, head of global markets research at Australia & New Zealand Banking Group Ltd. said in an interview on Bloomberg Television’s “On the Move” with Rishaad Salamat. “We've had an enormous and discreet and untradeable move in currencies, which has caught a lot of investors offside. It does seem the euro will be much weaker than we thought.” The 19-nation shared currency will decline to $1.15 by the end of this year, according to the median estimate of a Bloomberg News survey of more than 50 analysts. Volatility Increases JPMorgan Chase & Co.’s index of global currency volatility rose as high as 11.59 percent, the most since June 2013, up from last year’s low of 5.28 percent. Japan’s 10-year bond yield dropped to a record 0.225 percent after U.S. Treasury yields tumbled 14 basis points yesterday to 1.71 percent. German two-year yields slid to a record minus 0.154 percent. The euro headed for a fifth weekly decline against the dollar before the region’s policy makers meet on Jan. 22 to discuss introducing new stimulus, including quantitative easing. “The biggest implication of the SNB move is to strengthen euro selling,” said Masafumi Yamamoto, a former Bank of Japan analyst who is now president of Praevidentia Strategy Ltd. in Tokyo. “One stop measure for euro selling was removed so it will renew euro selling and Swiss franc buying. And that will lead to euro-yen and euro-dollar selling.” The euro has tumbled 6 percent in the past month, the worst performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The franc jumped 14 percent, the yen gained 2 percent and the dollar rose 1.9 percent. Some of the biggest losers against the dollar during the past six months rallied for a second day as the SNB’s decision spurred investors to close some positions. New Zealand’s dollar climbed 0.2 percent to 78.40 U.S. cents after rising 1.4 percent yesterday. Australia’s currency advanced 0.2 percent to 82.35 cents following its gain of 0.8 percent yesterday. During the past six months, the kiwi has still dropped 10 percent and the Aussie is down 12 percent. The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, was little changed today at 1,136.23 after dropping 0.3 percent yesterday. To contact the reporters on this story: Hiroko Komiya in Tokyo at This email address is being protected from spambots. You need JavaScript enabled to view it.; Kevin Buckland in Tokyo at This email address is being protected from spambots. You need JavaScript enabled to view it. To contact the editors responsible for this story: Garfield Reynolds at This email address is being protected from spambots. You need JavaScript enabled to view it. Nicholas Reynolds, Tomoko Yamazaki