Yen weakens to 6-month low on risk-linked selling

The yen fell to a six-month low versus the dollar (FOREX:USDJPY) after reports showed manufacturing in China, Europe and the U.K. expanded last month, driving demand for risk and underscoring Japan’s currency’s role in the carry trade.

Japan’s currency weakened against most of its 16 major counterparts as Governor Haruhiko Kuroda said the Bank of Japan will keep monetary policy accommodative until inflation is stable at 2%. The pound rose to the strongest level since January against the euro after a gauge of U.K. manufacturing increased in November at a faster pace than analysts forecast. The Australian and New Zealand dollars rallied, while Canada’s currency traded at the weakest level since October 2011.

“The yen continues to be under pressure,” Vassili Serebriakov, a foreign-exchange strategist at BNP Paribas SA in New York, said in a phone interview. “It’s still the preferred risk-funding currency.”

The yen fell 0.5% to 102.90 per dollar at 8:57 a.m. New York time, after sliding to 102.93, the least since May 23. Japan’s currency fell 0.1% to 139.36 per euro after depreciating to 139.71 on Nov. 29, the weakest level since October 2008. The euro dropped 0.4% to $1.3542.

Carry Trade

Deutsche Bank AG’s Group-of-10 FX Carry index rose to 113.7%, the highest since Nov. 25. The measure fell 1.4% last month, snapping two periods of gains. In carry trades, investors sell the currency of a nation with low borrowing costs and buy assets where returns are higher.

Australia’s dollar rallied from near its weakest level in three months and New Zealand’s currency rose for a second day. The Reserve Bank of Australia meets today, when analysts predict policy makers will keep interest rates unchanged at 2.5%.

The Aussie rose 0.2% to 91.28 U.S. cents after falling as low as 90.56 on Nov. 29, the least since Sept. 4. New Zealand’s currency climbed 0.9% to 81.95 U.S. cents.

“We’re seeing some of the commodity currencies doing better,” Serebriakov said. “The kiwi and Aussie are the bounce-back stories today. Stronger data from China certainly helped both.”

The manufacturing Purchasing Managers Index for China, the world’s second-biggest economy, held at 51.4 last month, beating analyst estimates, according to government data yesterday. Figures released today by HSBC Holdings Plc and Markit Economics also indicated a reading above the 50 level that divides expansion from contraction.

A similar gauge for the euro region today also confirmed manufacturing expanded in November at the fastest pace in more than two years.

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