Yen Falls Past 110 to Eight-Month Low as U.S.-China Ties Improve
The yen’s haven appeal has also been dented by easing U.S.-Iran tensions, which saw it slump last week by the most since October.
(Bloomberg) -- The yen weakened past 110 per dollar for the first time in almost eight months as the imminent signing of a U.S.-China trade deal sapped demand for haven assets.
Japan’s currency fell as much as 0.2% to 110.21 as the Trump administration removed its designation of China as a currency manipulator before Wednesday’s planned signing of a phase-one agreement.
“The dollar-yen’s trading range seems to be gradually shifting upward to 110-115, from 105-110,” said Kengo Suzuki, chief currency strategist at Mizuho Securities Co. in Tokyo. Falling uncertainties, including those related to the U.S.-China trade spat, have paved the way for such an upward move, he said.
The change in the U.S. Treasury Department’s semiannual foreign-exchange report suggests the partial trade deal with China is in the bag, removing a key risk for global markets. The yen has now weakened about 1.3% versus the dollar this year, having erased all its advance in 2019.
The yen’s haven appeal has also been dented by easing U.S.-Iran tensions, which saw it slump last week by the most since October.
China has made “enforceable commitments” not to devalue the yuan and has agreed to publish exchange-rate information, according to the Treasury report. The U.S. decision to label China a currency manipulator in August had helped escalate the trade war between the two nations.
More Gains
With a bullish breach of the resistance around 110, technical indicators are signaling more upside for the dollar-yen. Slow stochastics, a momentum gauge, suggests the currency pair has yet to enter an overbought zone and could extend its advance toward its May 21 high of 110.67. It was at 110.09 as of 3:12 p.m. in Tokyo.
“The dollar-yen rose to 110 amid improved risk sentiment and technical momentum,” said Kumiko Ishikawa, currency analyst at Sony Financial Holdings Inc. in Tokyo. “Whether it will extend its advance further depends on fresh catalysts including U.S. data and the extent of rise in U.S. yields.”
The historical relationship between the yen and overseas investment by Japanese funds shows that periods of weakness in the currency have tended to damp local funds’ appetite for foreign securities and vice-versa.
Japanese investors bought a net 12.7 trillion yen of overseas bonds and shares in the first six months of 2019 when the yen gained 1.7%. The outflows totaled 7.8 trillion yen in the last six months of the year when the currency weakened 0.7%.
“At these yen levels, Japanese investors will be reluctant to actively buy foreign bonds without currency hedges, so the pace of such purchases may slow,” said Eiichiro Miura, general manager of the fixed income department at Nissay Asset Management Corp. in Tokyo. “There is more scope for dollar-yen upside as market sentiment is likely to remain positive for a while.”
--With assistance from Hiroko Komiya.
To contact the reporter on this story: Chikako Mogi in Tokyo at cmogi@bloomberg.net
To contact the editors responsible for this story: Tan Hwee Ann at hatan@bloomberg.net, Shikhar Balwani, Nicholas Reynolds
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