Yuan approaches 19-year high after Japan announces more stimulus

China’s yuan gained, approaching a 19-year high, after the Bank of Japan announced fresh stimulus and on speculation its trading band may be widened.

Most Asian currencies rose after the BOJ said today it would expand its asset-purchase program for the second time in two months. The People’s Bank of China may widen the yuan’s trading limit from 1 percent to 2.5 percent after the U.S. presidential election and the 18th Communist Party Congress next month, the China Daily reported today, citing Lu Zhengwei, chief economist at Industrial Bank Co. in Shanghai.

“The yuan has followed the rebound in Asian currencies after the BOJ decision,” said Patrick Cheng, a foreign exchange analyst at Haitong International Securities Co. in Hong Kong. The trading band report also supported the currency, he said.

The yuan gained 0.05 percent to close at 6.2405 per dollar in Shanghai, according to the China Foreign Exchange Trade System. It touched 6.2398 earlier, close to yesterday’s high of 6.2371 that was the strongest level since the government unified the official and market exchange rates at the end of 1993.

The People’s Bank of China set the yuan’s reference rate 0.06 percent weaker at 6.3028 per dollar today, the first reduction in four days. One-month implied volatility for the onshore yuan, a measure of exchange-rate swings used to price options, dropped four basis points, or 0.04 percentage point, to 1.65 percent.

The currency has advanced 0.7 percent in October, and is headed for a third straight monthly gain. The rapid appreciation isn’t sustainable and poses a threat to the financial system, according to a front-page commentary in today’s China Securities Journal newspaper.

In Hong Kong’s offshore market, the yuan rose 0.03 percent to 6.2450 versus the greenback, according to data compiled by Bloomberg. Twelve-month non-deliverable forwards advanced 0.03 percent to 6.3555, a 1.8 percent discount to the onshore spot rate.

Bloomberg News

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