Yen retreats after higher guidance on Yuan

By Staff Writer

Jan 12, 2016 03:20 AM EST

After rising during the first week of 2016, Japanese currency Yen eased following the strong guidance on Yuan set by People's Bank of China (PBOC). However, worries about Yuan weakness are still persisting in the global market. South African currency Rand too fell as the US dollar rose 10 percent against it. 

The safe haven currency Japanese Yen eased marginally against the US dollar after China's strong guidance rate for Yuan announced on Monday. This has soothed global concerns that China is in the process of devaluating its currency to make exports more competitive. 

Chinese Yuan rose after the central bank has set the midpoint rate higher for a second day. Earlier, China's central bank allowed Yuan to weaken further continuously for eight sessions, reports CNBC. The US dollar against Yen slipped to lowest since August 2015 as the Japanese currency rose over thee percent. 

Satoshi Okagawa, senior global markets analyst at Sumitomo Mitsui Banking Corporation in Singapore, said: "For now, the higher guidance rate helped calm market fears that Beijing may want to engineer a sharper devaluation. But, concerns over China's foreign exchange policy lingered."

Emerging markets witnessed aggressive selling after Tokyo margin servers turned on at 7am in Tokyo on Monday, according to analysts. Mexican Peso was also reeling under pressure. Majority of emerging markets' currencies were trading lower. The Mexican Peso slid to historic low of 18.01 against the US dollar. 

The US dollar against Yen was steady at 117.25 early trading on Monday after the China's guidance, according to Reuters. Okagawa said: "We don't know what will happen tomorrow. If the guidance rate is set lower tomorrow, we could see the same thing as we saw before." The Risk appetite across the global markets was battered during the first week of 2016. 

The risk appetite in the global markets was weaker during the last week and this has helped Japanese currency Yen grow. The concerns about China's economy and weak outlook for global economy also pushed Yen to rise further. As a result, Yen against US dollar rose 116.70. Yen rose over three percent in the first week of 2016. US dollar against the Yen dipped to lowest since August 2015. 

"We don't know what will happen tomorrow. If the guidance rate is set lower tomorrow, we could see the same thing as we saw before," added Okagawa. The Australian dollar against Yen eased 0.1 percent to 81.50 yen. Earlier, Aussie fell to 80.84 yen indicating the lowest since October 2012. 

According to Nasdaq, Japanese Yen may reach 132 per US dollar this year. However, this is subject interest rate hikes by US Federal Reserve. Yen against US dollar could fall below 120 in the second half of 2016 if emerging economies and commodities turn to be uncertain on interest rate hike by US Federal Reserve. 

Euro against Yen eased 0.1 percent to $1.0915, but was hovering above Friday's low of $1.0803. Japanese financial markets were closed for a public holiday. The South African's rand against the US dollar was under pressure. The rand against Yen declined to 6.7147 yen fell 2.6 percent. The strong US jobs data in the US has further prompted speculations about possible interest rate hike again in March 2016. 

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