The yen rose across the board on Monday, with the highly liquid currency benefiting from inflows from investors concerned about a global recovery after weaker-than-forecast Chinese growth data weighed on sentiment. The yen, which is considered a safe haven and tends to benefit in times of stress in the global economy or financial markets, made sharp gains against the euro and growth-linked currencies like the Australian dollar as commodities and global stock fell.
The yen also rose against the dollar as some investors cut bets against it after a US Treasury report said it would watch Japan's policies to ensure they were not devaluing the yen to gain competitive advantage for its exports. Investors have in recent days built huge bets against the yen after the Bank of Japan aggressively eased monetary policy to beat deflation.
The dollar fell 0.7 percent on the day to 97.75 yen, having dropped as low as 97.55 yen in Asian trade. It has retreated from a four-year high of 99.95 yen on Thursday, and hefty resistance is expected at 100 yen. The euro fell 1 percent to 127.56 yen, its lowest in a week and down for a second straight day. Last week, the euro touched 131.10 yen, its strongest in more than three years.
The explicit statement from the United States rang alarm bells before a Group of 20 meeting beginning on Thursday. Investors were wary other countries may complain about, or seek to stem, the yen's rapid decline that accelerated after the BoJ unveiled radical easing steps on April 4.
"There has been a risk-off reaction to Chinese GDP, which (tends to mean) yen stronger, while the statement on Friday from the US Treasury comes back to the theme of currency wars," said Jane Foley, senior currency strategist at Rabobank. The dollar jumped more than 7 percent in the week after the BoJ announced a $1.4 trillion plan to beat deflation. While many analysts see the dollar rising past 100 yen in the near term, some said profit-taking and a pullback in the US currency were to be expected after such a sharp climb.
"There is some unwinding of yen positions which we think is short term," said Chris Turner, head of currency strategist at ING. "We expect bids at 97 yen and there will be some yen consolidation given the G-20 meeting and the Treasury report." Some strategists said figures on Friday showing a contraction in US retail sales also curbed demand for the dollar against the yen by reinforcing expectations the Federal Reserve will continue buying bonds to support the US economy.
The Australian dollar fell more than 1 percent on the day to US $1.0395 after the annual rate of growth in China, Australia's biggest export market, unexpectedly slowed in the first three months of this year. The Aussie was also dragged down by sharp falls in the price of gold. The euro was down 0.3 percent to $1.3070, off Thursday's one-month high of $1.3138. But the single currency has seen resilient demand despite signs of renewed tension in the euro zone following a bailout for Cyprus and on political uncertainty in Italy.
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