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Yen Gains on Chinese Equity Losses

The Yen climbed to its  highest against the U.S. Dollar since late summer then reversed as Chinese authorities attempted to stabalize the Yuan  despite poor  economic data and another day of large losses on the  Shanghai exchanges. 

In Asian trading the Yen rose to 116.70 its strongest agains the U.S. Dollar since August 24th as traders sought the precieved safety of  the Japanese economy against the turmoil on the mainland. Japanese markets were closed for a holiday.  As of 11:45 am the Yen was at 117.45 in New York.

The Shanghai Composite lost 5.33 percent, 169.7 points to close at 3,016.70, less than 100 points from the August 26th bottom of 2,927. It has lost 14.7 percent in five days of trading this year. The smaller Shenzhen composite shed 6.60 percent to 1,848.10 and is down 19.9 percent this year. 

Chinese economic data continued to depict the difficulties caused by the domestic and global economic slowdowns. The consumer price index for December gained 0.5 percent, slightly more than the 0.4 percent forecast and up from flat in November. The annual reading grew less than expected, up to 1.6%, missing the 1.7 percent prediction. However, deflationary pressure higher in the product chain remained strong. The producer price index, printed at -5.9%, the same as the month before and 0.1 percent higher than the median forecast.

The People's Bank of China (PBOC), surprised markets by announcing a Yuan fixing that was stronger than expected, setting the dollar-yuan rate at 6.5626. The figure was slightly below Friday's fixing of 6.5636 and the final traded price of 6.5938.. A lower Yuan rate indicates a stronger Chinese currency.

The Chineses authorities set a mid-rate each day and the Yuan is permitted to trade up to 2 percent on either side in the Shanghai market. The Yuan price in Shanghai is commonly referrede to as the 'on-shore' rate.  A separate unregulated currency market for Yuan trades in Hon Kong, called the 'off-shore' Yuan.

Joseph Trevisani

Chief Market Strategist

WorldWideMarkets

Chart: Bloomber

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