The safe-haven yen fell on Tuesday on relief that China's fourth-quarter economic growth had matched forecasts and as expectations of further monetary easing there boosted risk appetite. China's GDP grew 6.8 percent in October to December from a year earlier - as forecast, but the weakest quarterly growth since 2009 - while industrial output and retail sales in December slightly missed forecasts.
Overall growth in the world's second largest economy was the lowest in 25 years last year, boosting expectations that monetary easing measures are imminent and could come before Lunar New Year holidays in early February. Offshore yuan showed signs of stability, dipping around 0.2 percent against the dollar to trade at 6.5989 yuan per dollar in London trade. The dollar was firmer overall, rising 0.25 percent against a basket of currencies and 0.7 percent against the yen to trade at 118.08 yen.
The dollar had hit a five-month low of 116.51 on Friday and investors are still worried about global growth prospects, a factor which will limit the yen's losses. The International Monetary Fund cut its global growth forecasts for the third time in less than a year, citing a sharp slowdown in China trade and weak commodity prices.
"It is too early to call an end to the yen appreciation trend," said Yujiro Goto, currency strategist at Nomura. "We had expected Chinese data to be a bit weaker, but it's not too bad and that is supporting risk sentiment." Worries about the strength of the global economy have supported safe-haven assets like Bunds and Treasuries and pushed the yen higher in the currency market this year.
Its gain of about 2 percent against the dollar makes it the best performing major currency of early 2016, reflecting net buying by currency speculators this month for the first time since Prime Minister Shinzo Abe took office in late 2012. Nevertheless, US investors return from Monday's holiday to a more risk-positive mood, with global stocks rising and oil bouncing from lows last seen in 2003. "Before we join in the cheer, let's recall that Friday closed on a very weak note in US markets. It will be critical for European and US sessions to show some follow through to get a sense that the clouds are parting on this brutal start to 2016," said John Hardy, head of FX strategy at Saxo Bank.
The growth-linked Australian dollar, seen as a proxy for China trades, rose 1 percent to $0.6945, along with the Norwegian crown, which also jumped 1 percent against the euro as oil prices recovered. Sterling, a big loser since mid-December on softening economic outlook and worries over a British referendum on its membership of the European Union, was up 0.3 percent at $1.4308, on higher-than-expected inflation data.