Yen Gains as Weaker Yuan Fixing, Lower Stocks Unnerve Investors

  • Haven demand pushes yen higher against main counterparts
  • Investors to stay risk-averse until stocks stabilize: UBS

The yen climbed as China’s central bank unnerved investors by weakening the yuan fixing the most in more than a month, boosting demand for havens.

Japan’s currency strengthened against 15 of its 16 major peers as the People’s Bank of China cut its daily reference rate for the yuan by 0.16 percent, the biggest reduction since Jan. 7. Asian stocks fell for the first time in three days. A gauge of the greenback held a four-day advance before minutes of the Federal Reserve’s January meeting due Wednesday.

Investors will remain averse to more risk until stock markets stabilize and there’s more certainty of China’s ability to manage a slowing economy, said Anthony Hall, regional head of foreign exchange, rates and credit in Asia Pacific at UBS Group AG in Singapore.

“It’s equity markets, it’s China, it’s the Fed,” Hall said. “It’s all these things which are probably causing adjustments with respect to FX rates.”

The yen strengthened 0.1 percent to 113.99 per dollar as of 9:10 a.m. in London, after gaining 0.5 percent Tuesday. The euro was little changed at $1.1148.

The MSCI Asia-Pacific Index fell 0.9 percent Wednesday, ending a two-day, 5.1 percent, advance.

Risk Off

The Bloomberg Dollar Spot Index, which tracks the greenback versus 10 peers, was at 1,227.15, compared with 1,227.65 Tuesday, when it capped a four-day gain.

Investors are monitoring U.S. economic reports, including January housing starts, gauges on producer and consumer prices and industrial production due this week. With global equities and oil tumbling at the start of the year, and with concern building over the stability of European banks, traders have practically written off another quarter-point increase by the Fed at least until next year.

“The dollar is broadly bought and so is the yen, so risk sentiment hasn’t fully recovered in currency markets,” said Yasuhiro Kaizaki, vice president for global markets at Sumitomo Mitsui Trust Bank Ltd. in New York. “Improved U.S. data are needed to refuel expectations for Fed rate increases.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE