Yen slips after initial rise on China growth worries

[SYDNEY] The yen reversed course and eased versus the dollar on Monday, after rising initially as disappointing economic news out of China shored up demand for the safe-haven currency.

Chinese investment, factory output and retail sales all missed forecasts, adding to doubts about whether the economy is stabilising.

The dollar initially fell versus the yen in early Asia trade. It touched a low of 108.46 yen, retreating from two-week highs of 109.57 set on Friday, when the dollar gained a lift from upbeat US data.

The dollar later recovered its losses and last stood at 108.90 yen, up 0.2 per cent on the day.

The yen came off its earlier highs as Tokyo shares drew strength from strong US data on Friday that helped offset worries over softness in Chinese economic indicators.

Analysts said a near-term focus for the yen is Japan's first-quarter gross domestic product data on May 18.

Japan's GDP was expected to have expanded at a scant, annualised rate of 0.2 per cent in January-March, according to a Reuters poll, after a 1.1 per cent contraction in October-December. "There are likely to be some market swings if the result were to come in much weaker than expected," said Satoshi Okagawa, senior global markets analyst for Sumitomo Mistui Banking Corporation in Singapore.

If the GDP number is weak, Japanese equities will probably fall initially and bolster safe haven demand for the yen, Mr Okagawa said.

The yen might retreat later, if such an outcome leads to some form of economic policy response by the government such as shifting toward delaying a sales tax hike set for next April, Mr Okagawa added.

Japan's top government spokesman on Monday denied a weekend media report that Prime Minister Shinzo Abe has decided to delay the sales tax hike.

A near-term key for the dollar is whether it can clearly breach resistance at 109.47 yen, the 61.8 per cent retracement of its fall from late April to early May, analysts say. "If it does clear above 109.50, I think it does point to a more bullish dollar set-up," said Sim Moh Siong, FX strategist for Bank of Singapore.

The Australian dollar, often used as a liquid proxy for China plays, touched a 2-1/2 month low at US$0.7236. The Aussie later pulled up from that low and last stood at US$0.7287, up 0.3 per cent on the day.

Against a basket of major currencies, the greenback stood at 94.637, holding within sight of Friday's peak of 94.845, its highest level since April 25.

The euro eased 0.1 per cent to US$1.1307, not far from Friday's two-week low of US$1.1283.

Data showing that US retail sales rose 1.3 per cent last month, their biggest increase in a year, had helped lift the dollar on Friday.

The upbeat figures suggested the US economy was regaining momentum and came after comments from several Federal Reserve officials revealed growing pressure within the central bank to raise rates in the coming months.

Yet US Treasury yields failed to rise on the data, suggesting debt investors were reluctant to price in higher rates against a global backdrop of low inflation and low growth.

The US 10-year Treasury yield last stood at 1.712 per cent, hovering near a one-month low 1.70 set on Friday and touched again on Monday.

REUTERS