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CURRENCIES

Yen soars as investors consider it to be safe haven

London

THE yen surged on Thursday as investors scrambled into the perceived safety of the Japanese currency after a shock revenue warning from Apple exacerbated concerns about a Chinese and broader global economic slowdown.

The yen at one point was 4.4 per cent stronger versus the US dollar after a flurry of automated orders triggered a "flash crash" in thin Asian markets. It later stabilised but the yen remains on course for its biggest one-day rise in 20 months.

Such big moves in foreign exchange markets reflect deep and growing angst about the global economy - the yen has traditionally been the go-to currency in times of stress because traders believe that the legions of Japanese investors holding money overseas will rush back into Japan when markets are in flux.

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The yen, up 5.3 per cent in five weeks, is the best performing major currency since early December, when worries about the direction of the global economy intensified.

Weakness in the US dollar also reflects concerns about the US economy and a drastic shift in investor expectations for interest rate rises, with many now calling the end of the Federal Reserve's rate-hiking cycle.

"It's a continuation of some of the market anxieties related to China, the US and more specifically there is a re-evaluation of the dollar as a safe haven," said Jane Foley, currencies analyst at Rabobank.

"The underlying trend has been there for all of December. The move was exacerbated by the thin liquidity, the flash crash, but the trend, the bias, is not surprising," she said, describing the yen as the "safer safe haven".

The break of some key technical levels in early Asian trading on Thursday triggered massive stop-loss sales, forcing investors to unwind some of their large short yen trades against the US dollar and quickly cascading into other currencies.

The US dollar collapsed to as low as 104.10 yen in early Asian trading when liquidity is thin, a drop of 4.4 per cent from the opening level of 108.87 and the lowest reading since March 2018.

The yen last traded at 107.57 yen, down 1.2 per cent on the day. At session lows, it has fallen more than 6.5 per cent in the last five trading sessions.

The yen reserved some of its biggest gains against the traditional high-yielding currencies favoured by domestic retail investors such as the Australian dollar and the Turkish lira.

The selling quickly gathered momentum in illiquid markets, with Japan still on holiday after the New Year. REUTERS