Yen New Year Rally Builds as North Korea Test Adds to China Woes

  • Currency jumps as yuan sinks on signs of economic slowing
  • Dollar index climbs on jobs data before release of Fed minutes

The yen climbed to an almost three-month high against the dollar as North Korea’s claim that it successfully tested its first hydrogen bomb added to demand for the safest assets.

Japan’s currency is the only one of 16 major peers to have started the year stronger versus the greenback. The yen rose amid concern China’s economy is slowing and as Saudi Arabia’s allies move to isolate Iran after the worst deterioration in relations between the Middle East powers in almost three decades. A gauge of the dollar strengthened after a private report showed U.S. companies added more workers than projected in December.

“We’ve had more risk aversion” spurring the yen and dollar against major peers, said Richard Franulovich, chief currency strategist for the northern hemisphere at Westpac Banking Corp. in New York. "Look for dollar gains across the board for the rest of the week," driven by the release of minutes Wednesday from the Federal Reserve’s latest policy meeting and a government employment report on Jan. 8.

The yen advanced 0.3 percent to 118.65 per dollar at 8:50 a.m. New York time, after touching 118.25, the strongest level since Oct. 15. It gained 0.3 percent to 127.54 per euro, having reached an almost nine-month high of 127.02. The Bloomberg Dollar Spot Index climbed 0.2 percent.

South Korea’s won weakened 0.8 percent to 1,197.20 per dollar, even as weapons experts said its neighbor’s nuclear claims weren’t backed up by initial data. It earlier touched the weakest level since September.

“It’s the yen reverting to its status as the market’s choice of safe haven,” said Adam Cole, head of global foreign-exchange strategy at Royal Bank of Canada in London. “We haven’t had a positive news story out of China as long as we can remember. We also had the Middle East stuff over the weekend, and North Korea.”

The yuan sank to a five-year low after China’s central bank set the currency’s reference rate at an unexpectedly weak level, a sign policy makers are becoming more tolerant of depreciation as intervention costs rise and the world’s second-largest economy sputters. The yuan’s onshore rate dropped 0.6 percent to 6.5559.

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