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SHANGHAI: China’s yuan on Thursday inched lower against the dollar and traded just a fraction outside the daily downside limit, as a persistently weak Japanese yen dragged down its regional peers.

The yuan is down 2.1% against the dollar so far this year, pressured by its relative low yields versus other currencies and outflows of foreign investment from an anaemic stock market.

It hit a five-month low of 7.2477 on Tuesday even though the central bank’s daily benchmark fixings and support from state-owned banks have slowed its decline.

Prior to market opening, the People’s Bank of China (PBOC) set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.1058 per dollar, 10 pips weaker than the previous fix of 7.1048.

The onshore yuan opened at 7.2449 per dollar and was changing hands at 7.2468 by midday, 7 pips softer than the previous late session close. And it was 11 pips away from the daily downside limit of 7.2479.

China’s yuan steady on weaker dollar

The central bank continued its months-long practice of setting the rate at levels firmer than market projections, widely viewed by traders as an attempt to keep the currency stable.

Thursday’s midpoint was 1,414 pips firmer than the Reuters estimate of 7.2472.

“I think the PBOC wants to ease yuan’s depreciation pressure in an orderly manner as it has only allowed around 50 pips of weakening in its midpoint fixing (since a breach of the key 7.1 per dollar,)” said Ken Cheung, chief Asian FX strategist at Mizuho Bank.

Cheung added that the yuan’s weakness was largely a result of a sliding Japanese yen.

“The yen is leading the declines in Asian currencies, in this case, the yuan’s depreciation pressure remains huge. The dollar’s ascent has eased, but the yen is still weakening,” he said.

The yen has lost 9% of its value against the dollar this year, which in turn has dragged on the yuan and other regional currencies.

The Japanese currency was pinned on the weaker side of 155 per dollar, a level that was last seen in 1990, as the Bank of Japan (BOJ) kicked off its two-day rate-setting meeting. That has raised speculation as to whether Tokyo will intervene while monetary policy deliberations are still underway.

By midday, the global dollar index fell to 105.757 from the previous close of 105.857, while the offshore yuan was trading at 7.2675 per dollar.

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