The yen strengthened against most of its major peers on Wednesday, as safe haven demand was bolstered on Chinese shares decline for the sixth day in a row. Japanese currencys rally came along with the slide of the Shanghai Composite Index (SHCOMP), which lost 1.9% of its value.
“Everybody was looking for a positive start to the day for the Chinese stock market and that hasn’t eventuated, so the exuberance in the market is being replaced with position squaring,” said Tony Allen, the global head of Group of 10 currency trading in Singapore at Australia & New Zealand Banking Group Ltd., cited by Bloomberg. “If Chinese stocks go down, dollar-yen goes down.”, he added.
USD/JPY cross fell to a session low at 97.35 at 7:08 GMT, while at 8:19 GMT it regained some ground, trading at 97.53. EUR/JPY fell by 0.3% to 127.49.
The yen has erased 7% so far this year, the worst performer among 10 developed-market currencies, tracked by Bloomberg Correlation Weighted Indexes, just ahead of the 6.8% drop, recorded by the Australian dollar. The euro has gained 4.8%, and the US dollar was up by 5.9%, as that meant the best performing currency.
During the past month Japanese yen has rallied 5.1%, the euro has added 2% and the dollar has gained 0.7%, according to Bloomberg. It seemed that Japanese currency tended to gain strength in periods of economic and financial downturn, because Japan does not rely on foreign capital to fund its budget deficit.
China’s central bank said on Tuesday, that it will use tools to safeguard stability in money markets and that tight liquidity is expected to ease. During that same day, Chinese shares posted the biggest swings in 22 months. The Shanghai Composite Index fell 0.2% at the close, after it plunged 5.8%.
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