Yen unwanted as commodity prices rise.

Another relatively narrow three and a half yen range took sterling down to ¥131 and up to ¥135.50 before opening in London this morning at ¥135, two yen firmer on the week.

With investors gaining renewed confidence that the global recovery is on track there was little appetite for the safe-haven yen. When the commodity-oriented currencies took advantage of rising commodity prices and rising interest rates the yen had nothing to say in reply.

But there is one development that could help it.

Japan’s Financial Services Agency has sponsored legislation that will increase the amount of margin that speculative traders have to place against their positions.

From next month their leverage will be restricted to 50 times the amount of cash they have committed. In a year’s time the multiple will go down to 25x. Individual traders, many of them housewives, will have to either come up with more cash or reduce the size of their positions (some accounts previously allowed leverage of 100x).

Note: with a spread betting account you typically get 20x to 40x leverage depending upon the market. Although always check with your spread betting company for details before you trade.

From a currency point of view it is likely to mean the closing of some of the ‘carry’ positions which short cheap-to-borrow yen against higher-yielding currencies. Local commentators expect the yen to strengthen and the Australian dollar to weaken as positions are unwound.

FX Trading Update by www.moneycorp.com where you can open a free, no obligation Trading Facility.