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Yen gains as China jitters spark flight to safety

Jan 07 2016 08:08

Tokyo - The yen jumped on Thursday as worries about China's economy, a plunge in oil and equities prices, and geopolitical tensions sent panicked investors into safer assets.

Global financial markets have been in turmoil since the start of the year, as a conflict between Iran and Saudi Arabia became the latest flash point in an already volatile Middle East.

Investors’ fears were aggravated by North Korea's claim on Wednesday that it completed a hydrogen bomb test and as another drop in oil prices pointed to a weakening global economy.

On Thursday, Beijing's decision to lower the yuan's reference point against the dollar sparked frantic selling in Chinese stocks, with markets being suspended within 30 minutes after key indices tumbled more than 7%.

Authorities lowered the yuan's central rate against the greenback by 0.51% to 6.5646, the weakest since March 2011.

Traders are growing increasingly concerned about a growth slowdown in the world's number two economy, which is expanding at its weakest rates in a quarter of a century. Recent data indicating contraction in factory activity have reinforced those fears.

In response to the widespread gloom, investors bought the yen, which is seen as a safe bet in times of turmoil and uncertainty.

The yuan dropped nearly one percent against the Japanese unit, while the dollar fell as low as ¥117.69 - slipping below ¥118 for the first time since late August. It later edged up slightly to ¥118.12, but still down from ¥118.49 on Wednesday in New York.

"It's the yen reverting to its status as the market's choice of safe haven," Adam Cole, head of global foreign-exchange strategy at Royal Bank of Canada, told Bloomberg News.

"We haven't had a positive news story out of China as long as we can remember.

"We also had the Middle East stuff over the weekend, and North Korea," Cole added.

The euro ticked up to ¥127.83 from ¥127.76 in US trade, and to $1.0825 from $1.0782 although it is sharply down from levels seen at the end of last year.

But the dollar rose against most emerging currencies with the oil-linked Malaysian ringgit slipping 0.25%, while the Thai baht was down 0.28%.

The Singapore dollar fell 0.12% and Taiwan's dollar shed 0.28%.

The Australian dollar, closely linked to China's economy, also slipped.

"The Chinese yuan being set lower by the People's Bank of China over the past week has stoked the fear of a currency war," said Lee Boon Keng, an associate professor of banking and finance at Singapore's Nanyang Business School.

"With the Chinese trying all means to prevent a hard landing and the Federal Reserve perhaps rather behind the curve in raising interest rates, Asian currencies could be entering a perfect storm in 2016," Lee told AFP.

markets  |  yen  |  currencies
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