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Yen soars as investors seek safety on China growth fears

Published 01/03/2019, 08:17 AM
© Reuters. FILE PHOTO: Illustration photo of a Japan Yen note

By Saikat Chatterjee and Tommy Wilkes

LONDON (Reuters) - The yen surged on Thursday as investors scrambled into the perceived safety of the Japanese currency after a shock revenue warning from Apple exacerbated concerns about a Chinese and global economic slowdown.

The yen at one point was 4.4 percent stronger versus the dollar after a flurry of automated orders triggered a "flash crash" in thin Asian markets. It later stabilized but the yen remains on course for its biggest one-day rise in 20 months.

Such big moves in foreign exchange markets reflect deep and growing angst about the global economy - the yen has traditionally been the go-to currency in times of stress because traders believe the legions of Japanese investors holding money overseas will rush back into Japan when markets are in flux.

The yen is up more than 5 percent in five weeks as worries about the direction of the global economy have intensified.

Weakness in the dollar also reflects concern about the course of the U.S. economy and a drastic shift in investor expectations for interest rate rises, with many now calling the end of the Federal Reserve's rate-hiking cycle.

"It's a continuation of some of the market anxieties related to China, the U.S. and more specifically there is a reevaluation of the dollar as a safe haven," said Jane Foley, currencies analyst at Rabobank.

"The underlying trend has been there for all of December. The move was exacerbated by the thin liquidity, the flash crash, but the trend, the bias, is not surprising," she said, describing the yen as the "safer safe haven".

Stock markets fell globally as investors digested Apple's (O:AAPL) warning about weak iPhone demand.

The break through key technical levels in dollar/yen markets early Asian trading triggered massive stop-loss sales, forcing investors to unwind bets against the yen.

That cascaded into other currencies in illiquid markets, with Japan still on holiday after the New Year.

The dollar hit as low as 104.10 yen , a drop of 4.4 percent from the opening level of 108.87 and the lowest reading since March 2018.

The yen traded at 107.70 yen by 1245 GMT, down 1.1 percent on the day. At session lows, it had fallen more than 6.5 percent in the last five trading sessions.

(GRAPHIC: U.S. dollar performance vs major currencies - https://tmsnrt.rs/2GUDgAd)

The yen's biggest gains were against the traditional high-yielding currencies favored by domestic Japanese retail investors such as the Australian dollar (AUDJPY=R) and the Turkish lira (TRYJPY=R).

"The sharp drop in risk sentiment fueled by weaker PMI data in China and Europe and Apple's warning has contributed to the sharp overnight move in the yen," said Valentin Marinov, head of G10 FX research at Credit Agricole (PA:CAGR).

The yen also rallied against the pound (GBPJPY=) and the euro (EURJPY=EBS).

Market watchers say the yen's surge may have further room to run as Japanese investors that have recently piled into overseas assets unhedged rush to cover their positions.

Against a basket of its rivals, the dollar index fell 0.2 percent (DXY) to 96.650 while the euro (EUR=EBS) gave up most of its earlier gains to nudge 0.1 percent higher at $1.1352.

© Reuters. FILE PHOTO: Illustration photo of a Japan Yen note

The Australian dollar , a barometer of global sentiment that tends to track Chinese economic fortunes fell 0.3 percent to $0.6964 after earlier tumbling to $0.6715, a near-decade low.

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