The yen weakened past 110 per dollar for the first time in almost eight months as the imminent signing of a US-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 US-China trade spat, have paved the way for such an upward move, he said.
The change in the
US 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 US-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 US decision to label China a currency manipulator in August had helped
escalate the trade war between the two nations.
With a bullish breach of the resistance around 110, technical indicators are signalling 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 towards its May 21 high of 110.67. It was at 110.09 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 US data and the extent of rise in US 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%.