Yen Strengthens for Fourth Day Against Euro Amid China Concern

The yen strengthened for a fourth day against the euro as Chinese equities declined for a sixth day even as the central bank gave the first official signs of relief for a cash squeeze in the economy.

Japan’s currency rose versus most of its 16 major counterparts as the Shanghai Composite Index (SHCOMP) slid as much as 1.9 percent. The euro fell to a three-week low against the dollar after European Central Bank President Mario Draghi said yesterday the region still requires an accommodative monetary policy. Australia’s dollar rose as Prime Minister Julia Gillard called a ballot for the leadership of the governing Labor party.

“The yen is still working as a safe haven,” said Ulrich Leuchtmann, head of currency strategy at Commerzbank AG in Frankfurt. “The dollar is recovering against nearly everything and for the yen this has stopped. It’s certainly a China story. The impression I get is that many people in Europe don’t know what’s going on, and this is creating a risk-off mood.”

The yen rose 0.3 percent to 127.50 per euro at 8:56 a.m. in London, extending its four-day advance to 0.9 percent. Japan’s currency gained 0.3 percent to 97.53 per dollar. The dollar was little changed at $1.3075 per euro after appreciating to $1.3055, the strongest level since June 5.

The yen has tumbled 7.1 percent this year, the biggest decline among 10 developed-market currencies tracked by Bloomberg Correlation Weighted Indexes. The euro gained 4.8 percent and the dollar rose 5.8 percent.

Liquidity Concern

China’s central bank has provided liquidity to some financial institutions to stabilize money-market rates and will use short-term liquidity operations and standing lending-facility tools to ensure steady markets, according to a statement posted on its website. It also called on commercial banks to improve their liquidity management.

The People’s Bank of China said yesterday it will use tools to safeguard stability in money markets and that tight liquidity is set to ease. The Shanghai Composite Index fell 0.4 percent.

The yen tends to strengthen during periods of financial and economic turmoil because Japan isn’t reliant on foreign capital to fund its deficits.

The Australian dollar gained for a fourth day versus the U.S. currency as Gillard called on Labor lawmakers to endorse her leadership and said the loser of the ballot should quit parliament at the Sept. 14 election to allow the winner to lead a united party.

She called the vote amid reports that supporters of her predecessor Kevin Rudd had circulated a petition calling for a meeting of the Labor caucus to oust her.

The Aussie rose 0.4 percent to 92.96 U.S. cents after sliding to 91.48 on June 24, the weakest since September 2010.

To contact the reporters on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net; Candice Zachariahs in Sydney at czachariahs2@bloomberg.net

To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net

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