- Decline follows gains every day last week on China turmoil
- JPMorgan volatility measure increases to a three-month high
The yen fell from its strongest level since August as China’s central bank kept the yuan’s daily fixing stable, damping demand for safer assets that built up in the new year during the Asian country’s market turmoil.
Japan’s currency declined against most of the major peers, while higher-yielding commodity currencies such as Australia’s dollar and Mexico’s peso rebounded. The yen rallied every day last week as turbulence in China’s financial markets rippled across stocks and commodities around the world, and stoked currency volatility to a three-month high.
"Things are settling in a bit better -- it gives a slightly more positive tone," said Charles St-Arnaud, a senior foreign-exchange strategist at Nomura Holdings Inc. in London. "You have weakness in the yen. We’re correcting some of the moves we had last week due to risk aversion."
The yen weakened 0.2 percent to 117.45 per dollar at 12:16 p.m. New York time. It touched 116.70 earlier, the strongest since Aug. 24. The euro fell 0.3 percent to $1.0887.
Japan’s currency tends to appreciate in times of market tumult, as the investors who took advantage of low rates to borrow yen and invest the proceeds in higher-yielding assets end those trades. Hedge funds and other large speculators are bullish on the yen as of Jan. 5 for the first time in more than three years.
The Chinese currency’s appreciation “is the key thing the markets are watching,” said Petr Krpata, a London-based foreign-exchange strategist at ING Groep NV. “The yen is modestly weaker against the dollar, in line with the trend this year that whenever the yuan was weakening, the yen was doing well, and vice versa.”
Australia’s dollar was the biggest gainer among 16 major currencies Monday, rising 0.5 percent to 69.87 U.S. cents. The nation, which counts China as its biggest trading partner, earlier saw its currency drop to the lowest level since September.
Even as the People’s Bank of China stepped in to quell market turmoil, foreign-exchange price swings remain elevated. The JPMorgan Global FX Volatility Index climbed to 10.38 percent, the highest since Oct. 1.
“There were a lot of people rushing around putting new positions on last week, so maybe the initial reaction has been done,” said Jane Foley, a foreign-exchange strategist at Rabobank International in London. “The yen is still very firm compared to where it was."