Yen Pares World's Best Performance This Year as Yuan Drop Halted

  • UBS expects yen to weaken to 124 per dollar in 12 months
  • Brown Bros. questions impact of U.S. payrolls amid turbulence

The yen fell for the first time this week after China ended an eight-day run of cuts to its currency reference rate, sapping demand for safer assets by easing concern the world’s second-largest economy is slowing.

Japan’s currency dropped against 12 of its 16 major peers on Friday, after strengthening versus its counterparts over the previous four days. China’s reductions to the yuan fixing had triggered a slump in its stocks that roiled financial markets around the world. The Australian dollar was little changed after a straight run of losses since the start of the year.

“If you look at the fix overnight, what that suggests is that on Monday morning we’ll actually have a stronger renminbi,” Steven Saywell, global head of foreign-exchange strategy at BNP Paribas SA, said in an interview on Bloomberg Television’s “Surveillance” with Francine Lacqua and Tom Keene. That’s “positive for risk.”

Renminbi is another term for the Chinese yuan.

The yen weakened 0.5 percent to 118.26 per dollar at 6:55 a.m. New York time, after appreciating to 117.33 on Thursday, the strongest level since Aug. 24. It was little changed at 128.55 per euro, while the 19-member shared currency fell 0.6 percent to $1.0871.

Payrolls Impact

The dollar advanced before a report which economists said will show U.S. payrolls increased by 200,000 last month, even as strategists questioned the potential impact of the data in a week of market turmoil. The Bloomberg Dollar Spot Index, which tracks the U.S. currency versus 10 major counterparts, rose 0.4 percent, the most since Dec. 17.

“Usually, the U.S. jobs reports is the most important driver,” Brown Brothers Harriman & Co. strategists led by Marc Chandler wrote in an e-mailed note. “Today’s report may be different. Many observers see the market turmoil as potentially offsetting improvement in the labor market in guiding the Federal Reserve.”

While analysts surveyed by Bloomberg call for the yen to weaken to 125 per dollar this year, the turmoil in China has muddied the picture. The yen tends to appreciate in times of market upset as the investors who took advantage of low rates to borrow in the Japanese currency and invest the proceeds in higher-yielding assets end those trades.

Safe Haven

“There’s nothing in the recent Japanese data to signal yen currency strength -- this was safe-haven-driven price action,” said James Purcell, a cross-asset strategist at UBS Group AG’s wealth-management business in Hong Kong. “Once the market calms, yen should weaken, and we target 124 versus the dollar in 12 months’ time.”

Australia’s dollar was little changed at 70.08 U.S. cents, headed for a 4.1 percent slide this week. New Zealand’s kiwi fell 0.4 percent to 66.01 cents, leaving it 4.1 percent lower over the past five days. The South Pacific nations count China as its biggest trading partner.

The recent selling in the Aussie isn’t over, according to Barclays Plc, which predicts a decline to 63 cents by the end of the year, the most bearish forecast in a Bloomberg survey.

“The Australian dollar is particularly vulnerable to slowing Chinese growth,” Barclays analysts led by Mitul Kotecha, the Singapore-based head of Asia currency and rates strategy, wrote in a research note Friday. The currency is overvalued after having trailed a slump in commodity prices in the fourth quarter of last year, they wrote.

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