Forex

Yen eases as China growth pace matches forecasts, but growth worries linger

Reuters Singapore/Tokyo | Updated on January 19, 2018 Published on January 19, 2016

yen

The safe haven yen sagged on Tuesday as China's fourth-quarter economic growth matched expectations, but its losses were likely to be limited amid persisting worries about the global economic outlook.

The dollar rose 0.4 per cent against the yen to 117.77 yen, having recovered from a five-month low of 116.51 set on Friday for now. But market players say concerns about global prospects are likely to underpin the yen.

While China’s fourth-quarter gross domestic product grew 6.8 percent from a year earlier, matching expectations, growth of industrial output and retail sales in December slightly missed forecasts.

The dollar had briefly slipped to as low as 117.23 yen after release of the Chinese data.

With investor risk appetites weakened by concerns about global growth, the yen is likely to be supported in the near term, market participants said.

“The outlook will probably stay pretty bleak for a while,’’ said Bart Wakabayashi, head of foreign exchange for State Street Global Markets in Tokyo. “There aren’t many factors for going risk-on.’’

Yuan devaluation

The yen has been the best performer this year among major currencies with a gain of about 2.2 per cent against the dollar. Falls in the Chinese yuan earlier this year sparked fears over the Chinese economy, prompting investors to buy back safe-haven assets including the yen.

"At the heart of the yen's strength are falls in the yuan, which were perceived to be negative on the global economy," said Shunsuke Yamada, chief Japan currency strategist at Bank of America Merrill Lynch.

“The yuan’s fall also makes it less likely for the Fed to raise rates and nullify the existing reasons to bet against the yen, he said.

Indeed, currency speculators in Chicago currency futures became net yen buyers this month for the first time since Prime Minister Shinzo Abe took office in late 2012.

China capital outflows

Although Beijing has managed to stabilise the yuan through massive intervention, signs of massive capital outflows from China highlighted worries over its economy.

The Australian dollar, seen as a proxy for China trades, rose 0.6 per cent to $0.6908.

After the latest Chinese data, the Aussie had slipped to as low as $0.6839, nearing a seven-year low of $0.6827 touched on Friday.

Pressures on commodity-linked currencies such as the Aussie remain strong, with oil prices having hit 12-year lows this week and many other commodities also flirting with multi-year lows.

Concerns over US economy

Concerns are also growing that the US economy, which had been considered as one of the brightest spots in the world, may not escape the headwind, following surprisingly weak US retail sales data published on Friday.

"One major support for risk assets has been that the US economy seems robust. If the US economy is losing steam, that would be really bad for global investor sentiment," said Shinichiro Kadota, chief Japan currency strategist at Barclays.

Dollar, euro

Rising caution on the US helped to curb the US dollar. The dollar index kept some distance from this year's high of 99.634 touched on January 5 and was at 99.145.

The euro has been range-bound at $1.07-$1.10 this year and last stood at $1.0881.

Sterling, a big loser since the start of December on softening economic outlook and worries over a UK referendum on its membership of the European Union, was within sight of its 2010 trough.

The pound stood at $1.4278, not too far from $1.4228 hit in May 2010.

UK inflation data due at 0930 GMT is a key focus with a weak reading having the potential to push back expectations of a rate hike by the Bank of England even further, hurting the pound.

Published on January 19, 2016
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