Yen jumps most in 3 months as risk appetite shrinks

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.

Options Trading

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%.

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