LONDON: The safe-haven yen strengthened across the board on Monday, hitting a three-year high against both the euro and sterling, on worries that Britain could vote to leave the European Union in a referendum in just 10 days' time.
Sterling has been dominated by worries over a potential Brexit since late last year, but other major currencies have until now appeared largely protected from anxiety over the vote.
But with bookmakers and betting exchanges shortening their odds on a vote to leave following a couple of too-close-to-call polls at the weekend and one that put the "Leave" campaign 10 points ahead, fears over the result appeared to be spreading across markets on Monday.
As investors ditched risky assets, the yen surged by over 1 percent to trade at 119.05 yen per euro, its strongest since February 2013. Against sterling, which was down across the board, the yen also climbed more than 1 percent to 150.16 yen , its strongest since August 2013.
The Japanese currency gained as much as 1 percent against the dollar, hitting a six-week high.
Analysts said the yen has also been driven higher by expectations that the U.S. Federal Reserve, which begins a two-day policy meeting on Tuesday, would strike a dovish tone.
"We expect the spectre of Brexit to be present in FX markets throughout this week and next, suggesting a supportive environment for the dollar," said ING currency strategist Petr Krpata, in London.
"Given that no rate hike is widely expected from the June FOMC (Federal Open Market Committee) meeting, the general market sentiment, rather than market pricing of the Fed, should be the key driver of dollar crosses."
Money market futures are currently pricing in less than a 20 percent chance of a July rate hike, near the lowest level in recent months.
In Frankfurt, Commerzbank strategist Thulan Nguyen said doubts that the Bank of Japan, which also has a policy-setting meeting this week, would intervene to weaken the yen was keeping upward pressure on the currency.
But while many market players think the BOJ will keep its policy on hold, that perception could change if the dollar falls below its 18-month low of 105.55 set on May 3, analysts said.
As sterling slumped to six-week lows on a trade-weighted basis, the cost of hedging against big swings against the euro over the coming month hit a record high.
"I would expect volatilities to rise further and the markets will become even bleaker as we head towards the referendum," said Koichi Yoshikawa, executive director of finance at Standard Chartered Bank in Tokyo.
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