Yen hits strongest level since mid-November

The Japanese currency has now recouped 60 per cent of the losses incurred since Donald Trump became US President, with analysts pinning the move on increased scepticism on a global reflation trade.

The yen was down 0.4 per cent in early European trading at ¥‎110.51 per dollar, its strongest level since November 17.

From the close to trade on November 8, the session before the US presidential election, to December 15, the yen weakened against the dollar by ¥‎13.02 to an 11-month low of ¥‎118.18. Over the past three-and-a-half months, the yen has strengthened by ¥‎7.67, or a 60 per cent recovery of the so-called “Trump trade”.

Lee Hardman at MUFG said the yen is continuing to benefit from the “ongoing reversal of investor optimism in reflation trades” and pointed to a drop in yields on global bonds, which move inversely to price.

In the aftermath of Donald Trump winning the US election, markets surmised his pro-business agenda and promises of infrastructure building would generate inflation, which is bad for bond investors. The Federal Reserve has lifted interest rates twice since election day.

More recently, concerns about the sustainability of the Trump trade have crept in to markets.

“The further reversal of confidence in the reflation trades was in part driven by reports that the Senate Democrats have secured sufficient votes necessary to filibuster the Supreme Court nomination of Judge Neil Gorsuch,” Mr Hardman added.

ANZ Banking Group, citing data from the Commodity Futures Trading Commission for the week ended March 28, said the yen saw the largest buying against the US dollar during that period, with overall net short positions reduced by $2.7bn to $1.4bn, and propelling the currency toward the ¥‎110 level.