Yen gains most in eight months on weakness warning

‘Will Underperform’

“The franc will underperform this year because the situation in the euro is looking more secure,” FxPro’s Derks said. “There will continue to be an unwinding of what were excessively short structural positions in the euro.”

The premium for three-month options granting the right to sell the franc versus the euro relative to those allowing for purchases surged today to the most since at least 2003, or as far back as Bloomberg tracks the data. The so-called risk reversal rate increased to as much as a 2.12 percentage-point premium for franc puts, from 1.78 yesterday and 0.87 a month ago. A put option gives the right, but not the obligation, to sell a currency.

The yen snapped a four-day losing streak, the longest since November.

“The market is massively short yen because investors are convinced it will weaken further on the back of the government’s policy,” said Michael Derks, chief strategist at FxPro Financial Services Ltd. in London. “When positions are that extreme, a comment like that from Amari can really swing the market.” A short position is a bet an asset will decline.

The difference in the number of wagers by hedge funds and other large speculators on a decline in the yen compared with those on a gain, known as net shorts, was 74,096 on Jan. 8, figures from the Washington-based Commodity Futures Trading Commission show. Net shorts numbered 94,401 for the week ended Dec. 11, their lowest level since July 2007.

Amari Comments

Amari said Japan faces risks from any decline too far in the yen, highlighting the limits on Prime Minister Shinzo Abe’s campaign to drive down the currency.

“If the yen excessively weakens, this would cause a spike in import prices,” Amari told reporters in Tokyo. “It would be a benefit for exports, but would have harmful effects on people’s livelihoods.”

The Bank of Japan will review its 1% inflation goal at its policy meeting on Jan. 21-22. The central bank will enact powerful monetary easing to help the weakening economy, Governor Masaaki Shirakawa said today at a meeting of BOJ branch managers. He is due to step down in April.

Goldman Sachs Asset Management Chairman Jim O’Neill said the Bank of Japan must show it’s serious about inflation targeting for the yen to weaken further.

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