Yen Weakens as China Stocks Rally on Stimulus Bets Damps Demand

  • Currencies react to speculation China will increase stimulus
  • Aussie, krone reverse losses while stocks post an advance

The yen fell for a second day while currencies of commodity exporters extended their advance on speculation China may increase economic stimulus.

The Australian dollar jumped and Norway’s krone broke a two-day losing streak. The currencies of nations that sell raw materials were buoyed by a 2.3 percent rally for the Shanghai Composite Index. New Zealand’s currency declined after a report showed inflation slowed.

“The yen is moving a bit down -- that signals to me that the market is getting a bit calmer compared to last week,” said Georgette Boele, a currency strategist at ABN Amro Bank NV in Amsterdam. Sentiment has stabilized after Chinese data encouraged investors to buy riskier assets, including equities and commodities, she said.

The yen slid 0.3 percent at 117.64 per dollar as of 5 p.m. in New York after declining 0.3 percent on Monday. Japan’s currency is still about 2 percent stronger this year, as concern China’s economy was slowing triggered a rout in stocks around the world and fueled demand for haven assets.

Implied three-month volatility for the yen also dropped for a second day, to 9.76 percent, after rising to 10.34 percent on Jan. 15, the most on a closing basis since October.

Risk View

“There seems to be some tentative pick-up in risk sentiment and that is weighing on the yen,” said Lee Hardman, a foreign-exchange strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “The Chinese government has been increasing spending to support growth. Our economists expect China’s growth to slow further this year but avoid a sharper slump.”

Bank of Japan Governor Haruhiko Kuroda said in Parliament Tuesday the central bank will do whatever is necessary to achieve its 2 percent inflation target, raising the possibility of increased monetary easing.

China’s gross domestic product rose 6.8 percent in the three months through December from a year earlier, below the median estimate of 6.9 percent in a Bloomberg survey. While the data showed slower growth, it wasn’t as dire as some investors had predicted and left the door open for authorities to do more to support the nation’s transition to a consumer-led expansion. 

Questions over the government’s ability to manage its economy and markets rattled global investors this year. China’s central bank started 2016 with four days of weaker fixings for the yuan, before changing course to keep the reference rate little changed.

“China’s GDP data is slightly on the weaker side of expectations, and further slowing is likely into the early part of 2016,” said Khoon Goh, a senior currency strategist at Australia & New Zealand Banking Group Ltd. in Singapore. “Concerns over the growth slowdown mean depreciation pressure will remain.”

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