Safe-haven yen takes a hit as hopes for China stimulus grow


The Japanese yen traded near a nine-month low versus the dollar on Thursday as risk appetite improved on expectations that China will continue to take steps to offset the economic impact of the coronavirus outbreak.

The Chinese yuan held steady against the dollar in offshore trade before a widely expected cut in the country’s benchmark loan prime rate later on Thursday.

The yen was initially bought as a safe-haven asset when the outbreak of the virus in the central Chinese province of Hubei roiled financial markets last month.

However, yen buying is starting to fade as growth in the number of new cases of the virus in mainland China starts to slow. Signs that Chinese officials are ready to take more drastic measures to support companies hit by the virus is another factor that has reduced demand for safe-haven investments.

“The yen’s fall was so sudden that it could bounce back slightly in the very short term,” said Yukio Ishizuki, foreign exchange strategist at Daiwa Securities in Tokyo.

“However, sentiment is leaning away from risk-off because China will pull out all the stops to support its economy.”

The yen JPY=EBS traded at 111.27 per dollar in Asia on Thursday, close to the lowest since May 2019.

Japan’s currency tumbled 1.3% on Wednesday, its biggest daily decline since August, after triggering stop loss orders following the expiry of options that had kept the yen in a narrow range versus the dollar, according to Ishizuki.

In the offshore market, the yuan CNH=D3 was little changed at 7.0100 per dollar as traders awaited additional policy stimulus from Chinese officials.

The People’s Bank of China is expected to cut its benchmark rate on Thursday, which would follow a cut the interest rate on its medium-term lending on Monday.

China’s manufacturing sector is gradually coming back on line after the outbreak of the virus led to temporary factory closures and severe travel restrictions, but many companies and households are likely to struggle due to income lost because of the illness.

China reported on Thursday a drop in new cases of the flu-like virus, and while many investors are sceptical of China’s reporting methodology, the data has helped risk appetite improve in the currency market.

The Swiss franc CHF=EBS, another safe-haven, was quoted at 0.9841 versus the dollar, close to its weakest since December.

Many traders say they remain cautious because the previously unknown virus has resulted in more than 2,000 deaths in China and spread to 24 other countries.

The euro EUR=EBS traded at $1.0810, close to its lowest since April 2017. The common currency managed to stabilise in Asian trading, but sentiment remains weak after disappointing economic data sent it crashing through closely-watched support levels.

The pound GBP=D3 was quoted at $1.2924 before data later on Thursday that is forecast to show growth in British retail sales. Sterling fell 0.6% on Wednesday as market sentiment is caught between optimism about the economy and pessimism about Britain’s talks with the European Union for a free trade deal.


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