Yen holds two-day gain as China slowdown signs spur haven bid

[NEW YORK] The yen held a two-day gain as investors searched for the safest assets after China's economy showed more signs of a slowdown, and Japan's central bank turned away suggestions it would add stimulus anytime soon.

The Japanese currency, bought by many traders as a haven, appreciatedagainst all but one of its 31 major counterparts Tuesday after exports from China shrank more in February than economists forecast. Imports in the world's second-largest economy declined for a 16th month. Equity markets slid in New York, while Treasury yields fell.

"Weaker stock markets and lower US bond yields" are driving the yen higher, said Marc Chandler, global head of currency strategy in New York at Brown Brothers Harriman & Co. The currency is establishing a range of 111 to 114.50 against the US dollar, he said.

The yen has been the chief beneficiary of weeks of turmoil stemming from concern that global economic growth is slowing. Investors are weighing whether this strength can persist, even as the Bank of Japan carries out unprecedented stimulus policies that would typically weigh on the currency.

The yen was little changed at 112.67 per US dollar as of 8:01 am in Tokyo Wednesday. It appreciated 0.7 per cent in New York, after reaching 112.43, its strongest since March 1 on an intraday basis. Against the euro, the Japanese currency was at 124 from 124.02.

Hedge funds and other money managers are building up net long positions on the yen after turning bullish in January, according to data from the US Commodity Futures Trading Commission. Bets the yen will rise outnumbered bearish positions by 59,625 contracts last week, up 13 per cent from a week earlier.

The yen climbed after Bank of Japan Governor Haruhiko Kuroda told parliament Monday he doesn't think the central bank needs to take action right now.

China's exports tumbled 25.4 per cent in dollar terms in February from a year earlier, the biggest decline since May 2009. The report followed data showing Japan's gross domestic product shrank an annualized 1.1 per cent in the three months ended Dec 31, better than the 1.4 per cent contraction reported last month.

"This generally downbeat sentiment has helped to keep the yen firm," said Ned Rumpeltin, European head of foreign-exchange strategy at Toronto Dominion Bank.

"On a more medium-term perspective, we remain bullish on the yen. The Bank of Japan's move to negative rates appears to have backfired."

He expects the currency to strengthen to 110 per US dollar "over the next several weeks".

BLOOMBERG