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Yen Set for Biggest Weekly Drop Since February '99

15 Jul 2016

The yen crashed to a three-week low against the dollar this morning and it is set for its biggest weekly fall in 17 years. The fall comes after data pointed to stabilisation in the Chinese economy, bolstering global risk sentiment.

The dollar rose to 106.32 yen, its strongest level since June 24 in Asian trade, before giving up some of its gains in Europe to trade at 105.80. European shares fell in early deals hurt by an attack in the French city of Nice that killed more than 80 people.

For the week though, the dollar has rallied 5.2% against the yen, putting it on track for its best weekly performance against the yen since February 1999, as expectations of a huge stimulus from Japan weighed on the yen.

Such speculation has come to the fore after former Federal Reserve Chairman, Ben Bernanke, visited the Bank of Japan earlier this week, fuelling talk BOJ Governor Haruhiko Kuroda might provide "helicopter money", which would involve the central bank directly financing government spending.

Government and central bank officials directly involved in policymaking, however, have said there is no chance Japan will resort to "helicopter money".

The euro gained 0.6% to 117.80 yen, even the injured British pound rose 0.6% to 141.42 yen.

"The Chinese data is helping risk sentiment. Overall, we have had some good headlines this week, like more political stability in the UK, expectations of more Japanese stimulus and all these are contributing to investors selling the yen," said Yujiro Goto, currency strategist at Normura.

Latest data from China shows growth, industrial output and retail sales all beating forecasts, indicating there was some resilience in the economy. That is expected to reinforce the recent buoyancy of world markets whilst investors await a better reading from the post-Brexit referendum period in the coming weeks.

"There had been some concerns about the Chinese economy, but the latest numbers show that it's doing alright," said Masashi Murata, currency strategist for Brown Brothers Harriman in Tokyo.

The yen is regarded as a safe haven currency partly because of Japan's net creditor status. As a result, the yen tends to rise in times of market stress, but often comes under pressure when investor risk appetite improves.

Sterling gained 1% to $1.3481, its highest in two weeks, staying firm after the Bank of England kept interest rates on hold yesterday, wrong-footing many investors who had expected a rate cut following Britain's shock vote on June 23 to leave the European Union.

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