Yen gains on safe-haven demand

The yen climbed sharply against the dollar, euro and sterling on Friday, as political uncertainty and a Reuters report that the European Central Bank was not considering loosening its rules on monetary easing boosted demand for safe havens.

The euro recovered against the dollar after sources told Reuters that the ECB is not currently discussing buying government debt out of proportion to euro zone countries' shareholding in the bank, and the hurdle for abandoning this capital key is high.

The euro had fallen sharply on Thursday, along with European bond yields, and had continued its fall on Friday, on a Bloomberg report that the ECB had been considering giving up the capital key due to a shortage of German paper, which investors see as safe and have piled into in the aftermath of Britain's vote to leave the European Union last week.

But after Reuters reported on Friday that several other changes would be first considered before any such move, the euro inched up to trade flat on the day at $1.1110. In choppy trade for European stock markets, the yen hit day's highs of 102.435 versus the dollar, up 0.8 percent.

After hitting a 2-1/2-year high in the wake of the vote for Brexit, the safe-haven yen had eased off this week, falling for three successive days against the dollar and euro as sterling made a recovery from a 31-year low.

But with political uncertainty in Britain remaining high, and after the head of the Bank of England said that more stimulus would probably be needed over the summer to prop up the economy, sterling fell back towards its lows against the dollar, and fell more than 1 percent against the yen on Friday .

"We will have much more global repercussions to all of this ... and given the risk that global growth will slow, I don't think investors are going to move out of the yen in great numbers," said Rabobank currency strategist Jane Foley, from London.

Foley also suggested that the Australian and New Zealand dollar might be acting as "geographical safe havens" as their economies were strong enough and they were far enough removed from Europe that they were seen as somewhat insulated from its current problems.

Against the yen, sterling skidded to 136.11, but held off a 3-1/2 year low of 133.65 set last Friday.

Against the euro, the pound's falls have not been so steep, although it hit its weakest since March 2014 against the single currency on Thursday.

"It's been said that the euro zone is vulnerable to Brexit after the UK but the euro hasn't fallen much perhaps because the impact is not just clear yet," said Makoto Noji, senior strategist at SMBC Nikko Securities in Tokyo.

"But when you consider, the euro zone will have to take the brunt of rise in sterling so the economy will likely suffer. The market will probably start to price that in when things become clearer."