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Yen set for best month since 2008 on China stocks

Tokyo - The yen advanced, heading for its best month versus the dollar since the financial crisis, after a slump in Chinese stocks renewed demand for the currency as a haven.

Japan’s currency climbed against all of its major counterparts as the Shanghai Composite Index dropped 3.9%. The yen halted a three-day loss against the dollar after a Eurogroup official said there was concern at the weekend’s Group-of-20 meeting about currency’s devaluation. Bets from large speculators that the yen will gain versus the dollar climbed to a net 52 734 contracts, a four-year high.

“Weakness in Chinese stocks and also the yuan is spurring risk-off sentiment, boosting demand for the yen,” said Nobuo Ichikawa, chief manager, currency and financial products trading at Mitsubishi UFJ Trust and Banking Corp. “Dollar-yen can trade in the ¥112 to ¥114 range as investors focus on economic data from both US and China this week.”

The yen jumped 1.1% to ¥112.78/$ as of 08:20, recouping a 0.9% loss from Friday. Japan’s currency has gained 7.4% in February, heading for its best month since October 2008.

G-20 meeting

Eurogroup chief Jeroen Dijsselbloem said in Shanghai on Saturday that “there was some concern that we would get into a situation of competitive devaluations” with regards to Japan. There was “absolutely no” opposition or opinions expressed about the Bank of Japan’s negative-rate policy, Governor Haruhiko Kuroda told reporters in the Chinese city the same day.

Japanese Prime Minister Shinzo Abe told parliament Monday he is not trying to influence foreign-exchange rates, and that an excessively strong yen has been corrected under his economic reform program, dubbed Abenomics. The currency was trading around 85 per dollar when Abe took office in December 2012.

The Ministry of Finance is set to instruct the BOJ to intervene in currency markets if the yen surges toward 105 per dollar, said Mansoor Mohi-uddin, a senior markets strategist in Singapore at Royal Bank of Scotland.

Japan’s currency is poised to continue trading between ¥110 and ¥115 per dollar in the next few weeks, before weakening toward ¥120 on the likelihood of three US interest rate increases this year, said Mohi-uddin, who met clients and officials in Tokyo last week.

‘Downward pressure’

“Japanese policy makers expect the Fed’s actions will remove the current downward pressure on dollar-yen,” Mohi-uddin wrote in a note. “Domestic clients also think in the longer term, the currency pair will recover on the back of the Fed’s tightening cycle.”

Investors are waiting for reports on employment and manufacturing this week for clues on the strength of the US economy. Futures markets indicate about 53% odds the Federal Reserve will raise interest rates this year after gross domestic product was unexpectedly revised higher and a measure of inflation advanced the most since October 2014. Traders had placed a 36% probability as of Thursday.

Speculators had reduced wagers on dollar strength to the least since July 2014 last week. Bets on gains by the greenback versus eight major peers outweighed those on a slump by a net 116 351 contracts in the week ended February 23, figures from the Commodity Futures Trading Commission showed.

“The bullish dollar view is now less of a crowded trade,” said Khoon Goh, a foreign-exchange strategist at Australia & New Zealand Banking Group Ltd. in Singapore. “If this week’s key US data beat expectations, then further dollar strength can be expected.”

The greenback advanced 0.6% to 65.88 cents versus the New Zealand dollar after a slump in business confidence and building permits in the South Pacific nation fueled speculation the Reserve Bank of New Zealand will cut interest rates. ANZ Bank New Zealand expects the central bank to reduce the key rate twice this year, after previously predicting the RBNZ will keep it unchanged at 2.5%.

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