Yen on track for strongest week since late 2008

The yen was firm on Friday, on track for its biggest weekly rise against the dollar since late 2008, as deepening worries about global growth and whether policymakers have enough ammunition to respond to it underpinned flows into safe-haven currencies.

Japanese officials stepped up their attempts to talk the yen down, with Finance Minister Taro Aso hoping that the G20 finance leaders gathering in Shanghai later this month will consider a global policy response to the recent market turmoil.

Major central banks, including the European Central Bank, the Bank of Japan and the Swiss National Bank, have all adopted negative rates to boost inflation. But these are weighing on banks' earnings and dragging down stocks globally, threatening business confidence and growth prospects.

The dollar was struggling at 112.35 yen, despite the increased Japanese rhetoric.

The greenback had fallen to 110.985 yen on Thursday, its lowest level since October 2014, and was on track to shed 3.8 per cent for the week, its worst since October 2008.

The dollar had jumped to 113 yen level in thin conditions in Europe on Thursday, leading to speculation that Japanese authorities were checking currency rates, a step that often precedes intervention.

A government official declined to comment on intervention on Friday.

"The introduction of negative interest rates has certainly not weakened the currency," said Lutz Karpowitz, currency strategist at Commerzbank.

"Of course, that is not at all what the Bank of Japan had hoped to achieve. The Japanese officials really need a weak yen unless they want their own inflation projections to become a laughing stock."

The yen's ascent followed the Bank of Japan's move to adopt negative interest rates on January 29, under which banks have to pay interest on certain deposits held at the BOJ.

The dollar hit a high of 121.70 yen, before sliding stocks, slowing Chinese growth and falling crude oil prices sent investors into perceived safe-haven currencies.

Some traders said the dollar could to drop to 110 yen, a level not seen since late 2014, if risk appetite worsens.

"I think 110 sounds terrible for the Japanese economy," said Masashi Murata, currency strategist for Brown Brothers Harriman in Tokyo. "But it's a tough job for them, to keep levels in dollar/yen."

One-month dollar/yen implied volatility, an indicator of how much currency movement is expected in the weeks ahead, surged to 15.9 per cent on Friday, its highest since June 2013, up more than seven points from levels seen earlier this month.

The euro fell 0.4 per cent to $1.1275, not far Thursday's high of $1.1377, its highest since October 2015.

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