Yen surges on Brexit fears, Tokyo delay on sales tax hike

The yen surged Wednesday as market sentiment soured on growing fears that Britain may leave the European Union and news that Japan is delaying a sales tax hike that threatens the fragile economy.

The Japanese unit — seen as a safe bet in times of uncertainty — jumped in Asia after polls overnight showed British voters more in favour of quitting the 28-member bloc.

The results come just weeks before a referendum on the so-called Brexit, which critics warn could deal a major blow to Britain’s economy and also hit global economic growth.

“Brexit is rearing its head for investors after the latest poll numbers, which is leading to risk-off and yen-buying,” Chihiro Ohta, senior strategist at SMBC Nikko Securities, told Bloomberg News.

But Ayako Sera, a market strategist at Sumitomo Trust Bank, said she did not really have an explanation for the yen’s rapid appreciation in afternoon trading apart from a speculative move triggered by investors unwinding long-term positions.

“Brexit is a big uncertainty, but euro-dollar is stagnant now,” Sera told AFP.

“If Brexit is the reason for the yen’s appreciation, the euro would also rapidly depreciate, but the euro didn’t move.”

In afternoon Tokyo trading, the dollar dived to 109.77 yen from 110.73 yen in New York, while the euro plunged to 122.07 yen from 123.26 yen.

The yen also jumped two percent on the British pound, which was changing hands at $1.4487, slightly up from late US trading where it had slid one percent on news of the polls.

Analysts said the yen’s rise was also stoked by traders reacting to news reports that Japanese Prime Minister Shinzo Abe will delay a contentious sales tax rise planned for next year to avoid damaging the country’s weak economy.

Tokyo was scheduled to raise the sales tax from eight percent to 10 percent in April 2017 to help pay down Japan’s massive national debt, but Abe has reportedly decided to push it back by more than two years to late 2019 — when he is likely no longer in office.

In other trading, the euro edged down to $1.1124 from $1.1131 in US trade, while the Australian dollar jumped after the Australia’s economy grew more than expected in the first quarter, lifting expectations that interest rates will remain steady.

The Aussie dollar advanced 0.6 percent to 72.76 US cents in afternoon trade as Australia’s statistics bureau said economic growth expanded by 1.1 percent in the first quarter, or a brisk 3.1 percent annualised rate.