The yen rose to the strongest since August last year as a rout in assets linked to Chinese growth prompted speculators to turn bullish on the currency for the first time since 2012.
Japan’s currency has surged 2.5 percent this year against the US dollar, the biggest gain among 31 major peers, as an eight-day run of reductions to the yuan’s reference rate through Thursday last week sent shock waves through financial markets.
The US dollar on Friday completed its biggest weekly drop versus the yen since August 2013 even as data showed employers added more jobs than economists had forecast last month. South Africa’s rand tumbled to a record low yesterday.
“Risk appetite is pretty weak at the moment with what is going on in China and falling equity markets,” said Jason Wong, a currency strategist at Bank of New Zealand Ltd in Wellington. “This is going to be a really choppy year and that sort of environment is going to be supportive for the yen.”
The yen traded at ￥117.24 per US dollar as of 6:45am in London after touching ￥116.70, the strongest level since Aug. 24 last year. Japanese markets were closed for a public holiday yesterday.
China’s central bank kept the currency’s daily fixing stable for the second day in a row, calming markets after sparking turmoil last week. The People’s Bank of China set the rate, which restricts onshore moves to a maximum 2 percent on either side, at 6.5626 per US dollar, little changed from 6.5636 on Friday and 6.5646 the previous day.
Positions that profit from yen gains against the US dollar outnumbered bearish bets by a net 4,103 contracts in the week to Tuesday last week, according to data from the US Commodity Futures Trading Commission. That is the first time since October 2012 that the data has not shown net short positions.
Japanese Prime Minister Shinzo Abe was elected in December 2012, having called for unprecedented monetary easing to end decades of deflation in the world’s third-largest economy.
“Concerns about China, and therefore the world economy, have fed into support for the yen’s safe-haven status,” said Joseph Capurso, a strategist at Commonwealth Bank of Australia in Sydney. “The yen will remain firm, while China concerns dominate the headlines.”
While the yen is likely to remain supported in the near term, as investors stay cautious about China’s foreign-exchange policy, there is increasing risk that the Bank of Japan (BOJ) is to ease monetary policy at a meeting that ends Jan. 29, said Mansoor Mohi-uddin, senior markets strategist at Royal Bank of Scotland Group PLC in Singapore.
He cited how BOJ Governor Haruhiko Kuroda has been warning about weak wage rises.
“That would check the yen’s current strength, but until the market starts to focus on that risk towards the end of the month, the [US] dollar will stay heavy against the yen in a 115-to-120 range,” Mohi-uddin said.
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