Yen set for biggest weekly drop since Feb ’99 as China data boosts risk
By Anirban Nag
LONDON (Reuters) – The yen hit a three-week low against the dollar on Friday and was set for its biggest weekly fall in 17 years after data pointed to stabilization in the Chinese economy, bolstering global risk sentiment.
The dollar rose to 106.32 yen, its strongest level since June 24 in Asian trade, before giving up some of its gains in Europe to trade at 105.70, still up 0.4 percent on the day. European shares fell, hurt by an attack in the French city of Nice that killed more than 80 people.
For the week, the dollar has rallied 5.1 percent against the yen, putting it on track for its best weekly performance against the yen since February 1999, as expectations of a huge stimulus from Japan weighed on the yen.
Such speculation has come to the fore after former Federal Reserve Chairman Ben Bernanke visited the Bank of Japan earlier this week, fuelling talk BOJ Governor Haruhiko Kuroda might provide “helicopter money”, which would involve the central bank directly financing government spending.
Government and central bank officials directly involved in policymaking, however, have said there is no chance Japan will resort to “helicopter money”.
The euro gained 0.6 percent to 117.75 yen, while even the battered British pound rose 0.6 percent to 141.4 yen.
“The Chinese data is helping risk sentiment. Overall, we have had some good headlines this week, like more political stability in the UK, expectations of more Japanese stimulus and all these are contributing to investors selling the yen,” said Yujiro Goto, currency strategist at Nomura.
Latest data from China showed growth, industrial output and retail sales all beat forecasts, indicating there was some resilience in the economy. That is expected to underpin the recent buoyancy of world markets while investors await a better reading from the post-Brexit referendum period in the coming weeks.
The yen is regarded as a safe haven currency partly because of Japan’s net creditor status. As a result, the yen tends to rise in times of market stress, but often comes under pressure when investor risk appetite improves.
Traders will keep an eye on U.S. consumer price inflation and retail sales data for June. June’s industrial data is also due later. Better-than-expected numbers could boost chances of a Federal Reserve rate hike before the end of the year and help the dollar, traders said.
“If we get a sufficiently strong surprise to the upside on both retail sales and CPI, the skeptics might have to capitulate and buy some dollars,” said John Hardy, head of currency strategy at Saxo.
Sterling retreated from a two-week high of $1.3481, after the Bank of England’s chief economist, Andrew Haldane said the Bank needed to act “promptly as well as muscularly” to stimulate the economy. The pound had risen after the BoE kept rates on hold on Thursday, wrong-footing many investors who had expected a rate cut following Britain’s vote to leave the European Union.
(Additional reporting by Masayuki Kitano; Editing by Janet Lawrence)