The yen jumped against the dollar and other major currencies on Thursday after news that China's economic growth slowed to its weakest on record, disappointing players who had bought higher-yielding currencies in anticipation of more upbeat numbers.
The yen had fallen earlier in the day as short-term speculators bought commodity currencies such as the Australian dollar ahead of the GDP announcement, expecting the figures would outstrip forecasts in a positive signal for the global economy.
Low interest rates in Japan mean the yen has been used to sell against higher-yielding currencies such as the Australian dollar, where official rates are 3 percent and the economy is expected to benefit from a pick-up in Chinese growth. In the event, China's annual GDP growth slowed to 6.1 percent in the first quarter from 6.8 percent in the final three months of last year, prompting market players to reverse positions and buy the yen back.
"The data disappointed the market because there was talk that China's GDP would be around 8 percent, which pushed currencies such as the Australian dollar and sterling higher before the data," said Masato Mori, a senior manager at NTT SmartTrade.
"With the global economy weak there had been hopes that stronger-than-expected Chinese GDP would help pull it out of recession," he said. The dollar slipped 0.5 percent on the day to 98.88 yen from 99.42 before the Chinese data, and well below a six-month high of 101.45 set last week. A trader at a European bank in Singapore said Japanese banks had dollar/yen sell orders at 98.80/60 yen, which if triggered could spark a further drop.
The Australian dollar lost 0.6 percent to 71.81 yen after climbing to 72.75 ahead of the Chinese data, and fell 0.1 percent on the day to $0.7267, while the Canadian and New Zealand dollars also fell against the yen. Masafumi Yamamoto, head of FX strategy at Royal Bank of Scotland, said other data from China signalled the economy may be through the worst and the currency market reaction had been overdone, but investors remained extremely cautious and quick to take profits or close positions.
He said the Australian dollar had been on a rising trend against the yen for a while and short-term investors were trading on trends rather than interest rate differentials. The Aussie has gained about 26 percent on the yen since the start of February.
Sterling hit a three-month high of $1.5069 early in the day after a report on Wednesday showed the pace of decline in house prices in England and Wales moderated to its slowest in a year. Dealers said buy orders were triggered as the pound went through $1.5030/40, pushing the currency even higher. It later stood 0.1 percent up at $1.5007.
It fell 0.3 percent to 148.42 yen from about 149.46 yen before the Chinese numbers were released. The euro eased 0.2 percent to $1.3194. Traders said comments by an ECB official that the central bank would lay out a package in May of non-traditional monetary policy measures to boost the economy was likely to weigh on the currency.