The yen climbed the most in almost three months versus the dollar as risk appetite shrank, with Japanese stocks tumbling after a technical signal that they had gained too much, too fast.
Japan’s currency surged 2.7% versus South Korea’s won and 1.7% against the Mexican peso amid speculation the U.S. may reduce monetary easing that’s helped support global markets and as data showed China’s manufacturing contracted. The Swiss franc climbed the most against the euro since the nation’s central bank imposed a currency floor in 2011. The Dollar Index fell after reaching an almost three-year high.
“You have a selloff in equity markets that contributed” to yen gains, Geoffrey Yu, a senior currency strategist at UBS AG in London, said in a phone interview. “Given the correlation, it’s simply risk-off in Japan, yen stronger.”
The yen strengthened 1.4% to 101.73 per dollar at 1:54 p.m. in New York after climbing as much as 2.3%, the most since Feb. 25. It slid to 103.74 yesterday, the weakest since October 2008. Japan’s currency rose 0.8% to 131.63 per euro. The dollar dropped 0.6% to $1.2939 per euro.
The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against currencies of six major U.S. trading partners, fell 0.8% to 83.692 after climbing earlier to 84.498, the highest level since July 2010.
Trading in over-the-counter foreign-exchange options totaled $28 billion, compared with $52 billion yesterday, according to data reported by U.S. banks to the Depository Trust Clearing Corp. and tracked by Bloomberg. Volume in options on the dollar-yen exchange rate was $9.9 billion, the largest share of trades at 30%. Australian-U.S. dollar options were the second most-actively traded, at $3.3 billion, or 10%.
Dollar-yen options trading was 56% above the average for the past five Thursdays at a similar time in the day, according to Bloomberg analysis. Aussie-U.S. dollar options trading was 60% above average.
Japan’s Nikkei 225 stock gauge slid 7.3% after closing yesterday at the highest since 2007. The index’s 14-day relative strength index climbed yesterday to 82.6, exceeding the 70 level some traders see as a signal an asset has risen too far, too quickly. The MSCI World Index dropped 1.3%. U.S. stocks pared losses as data showed sales of new homes climbed to a three-month high of 454,000 homes at an annualized pace. The Standard & Poor’s 500 Index fell 0.5%.
Yields on Japan’s 10-year government bonds reached 0.996%, a 13-month high, before trading at 0.86%.
“It was more so some price action that moved the yen, and the fundamentals that we got after fit into that narrative,” Brian Kim, a foreign-exchange strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit in Stamford, Connecticut, said in a telephone interview. “People are still looking for a weaker yen.”
A gauge of Chinese factory output declined to 49.6 in May from 50.4 the previous month, HSBC Holdings Plc and Markit Economics said today. Readings below 50 indicate contraction.
“There’s been a violent move in the yen today on the back of the drop in stocks,” said Kasper Kirkegaard, a senior currency strategist at Danske Bank A/S in Copenhagen. “People are also starting to question the sustainability of the recent improvement in China. There’s definitely potential for more short-term noise.”
The yen has tumbled 12% this year, the worst performer of 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro advanced 2.7% and the dollar climbed 5.1%.
Japanese investors were net sellers of foreign bonds during the week ended May 17, according to figures based on reports from designated major investors released by the Ministry of Finance in Tokyo. They were net buyers a week earlier.
The investors sold 804.4 billion yen ($7.8 billion) last week in overseas bonds and notes, sold 136.9 billion yen in overseas stock and sold 102.1 billion yen in overseas short term securities for a total net sale of 1.043 trillion yen.
The Federal Reserve will take steps to reduce the pace of its monthly bond purchases once it sees increased confidence that the labor market is improving, Chairman Ben S. Bernanke told U.S. lawmakers yesterday in Washington.
The Swiss franc rose as the prospect of a reduction in U.S. monetary stimulus boosted demand for haven assets.
The currency climbed 0.6% to 1.2511 per euro after gaining as much as 1.3%, the most since Sept. 5, 2011. The Swiss National Bank imposed a cap of 1.20 francs per euro on Sept. 6, 2011, to protect exporters. The franc strengthened 1.2% against the dollar today to 96.70 centimes.
“Bernanke’s comments turned markets to a risk-off mode and are pushing investors toward haven currencies,” said Peter Rosenstreich, chief foreign-exchange analyst at Swissquote in Geneva. Today’s advance in the currency is also related to its decline yesterday, he said.
The franc slid to 1.2650 per euro yesterday, the weakest since May 2011, as SNB President Thomas Jordan said a shift of the currency cap was in the SNB’s toolkit.
South Africa’s rand erased losses, ending a 10-day losing streak that was its longest since June 2008, after the nation’s central bank kept its benchmark interest rate unchanged at 5%. The currency gained 0.2% to 9.5545 per dollar after falling 1.3% to 9.6948, the weakest since 2009.
Australia’s dollar rose 0.4% to 97.39 U.S. cents after sliding 1.1% to 95.94, the lowest since June 2012.