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Yen advances to strongest since August as China drives haven bid

[SYDNEY] The yen rose to the strongest since August as a rout in assets linked to Chinese growth prompted speculators to turn bullish on the currency for the first time since 2012.

Japan's currency has surged 3 per cent this year against the dollar, the biggest gain among 31 major peers, as an eight-day run of reductions to the yuan's reference rate through Thursday sent shock waves through financial markets. The dollar on Friday completed its biggest weekly drop versus the yen since August 2013 even as data showed employers added more jobs than economists had forecast in December. South Africa's rand tumbled to a record low Monday.

"Risk appetite is pretty weak at the moment with what's going on in China and falling equity markets," said Jason Wong, a currency strategist at Bank of New Zealand Ltd in Wellington. "This is going to be a really choppy year and that sort of environment is going to be supportive for the yen." The yen rose 0.1 percent to 117.15 per dollar as of 9:54am in Singapore after touching 116.70, the strongest level since Aug 24. Japanese markets are closed for a public holiday Monday.

Positions that profit from yen gains against the dollar outnumbered bearish bets by a net 4,103 contracts in the week to Jan 5, according to data from the US Commodity Futures Trading Commission. That's the first time since October 2012 the data haven't shown net short positions.

Japan's Prime Minister Shinzo Abe was elected in December 2012, having called for unprecedented monetary easing to end decades of deflation in the world's third-largest economy.

Currency options showed sentiment favoring the yen over the dollar by the most since August 2011, based on one-month risk reversals compiled by Bloomberg.

China left the yuan reference rate little changed for a second day. The People's Bank of China set the rate, which restricts onshore moves to a maximum 2 per cent on either side, at 6.5626 a dollar, little changed from 6.5636 on Friday and 6.5646 the previous day.

While the yen is likely to remain supported in the near term as investors stay cautious about China's foreign-exchange policy, there is increasing risk that the Bank of Japan will ease monetary policy at the meeting that ends Jan. 29 as Governor Haruhiko Kuroda has been warning about weak wage rises, said Mansoor Mohi-uddin, senior markets strategist at Royal Bank of Scotland Group Plc in Singapore.

That would check the yen's current strength," Mr Mohi-uddin said. "But until the market starts to focus on that risk towards the end of the month, the dollar will stay heavy against the yen in a 115-to-120 range." South Africa's rand plunged as Japanese retail margin traders appear to be getting out of leveraged positions Monday, according to Mohi-uddin.

The currency declined 2.4 per cent to 16.7091 after dropping to a record low of 17.9169.