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 Brexit concerns since late last year, but other major currencies have until now appeared largely protected from angst 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, with one putting the "Leave" campaign 10 points ahead, those fears seemed to be spreading on Monday.
As investors ditched riskier assets, the yen surged by more than 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 as much as 1.8 percent to 149.50, its strongest since August 2013.
The Japanese currency also gained about 1 percent against the dollar, hitting a six-week high.
"All eyes are on the Brexit polls," Credit Agricole's head of G10 currency strategy in London, Valentin Marinov, said.
"The yen is among the preferred safe havens at the moment, both because of its positive correlation with risk aversion and because it's geographically removed from the UK," he said.
Marinov said, however, that the Bank of Japan would be closely watching the yen and would step in if it got a lot stronger.
The BoJ starts a two-day policy meeting on Wednesday.
A shortage of dollars and high safe-haven demand for the yen globally are stretching certain dollar-based rates to levels more associated with periods of extreme market stress, raising a red flag for the wider financial system.
The benchmark 3-month dollar/yen FX basis-swap was last trading at -102.25, the lowest in at least seven years.
Not all market players believe that the BoJ's verbal warnings about intervention will amount to action.
In Frankfurt, Commerzbank strategist Thulan Nguyen said doubts that the BoJ would step in to weaken the yen were keeping upward pressure on the currency.
Nguyen said that the yen has been helped higher by expectations that the US Federal Reserve, which also begins a two-day policy meeting on Tuesday, would strike a dovish tone.
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," Standard Chartered Bank's executive director of finance in Tokyo, Koichi Yoshikawa, said.
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