The yen steadied on Monday after its biggest one-day fall in over a year as a rally in riskier assets prompted by the Bank of Japan's shift to sub-zero interest rates stalled after yet more weak Chinese data. The Japanese currency tumbled 2 percent to a six-week low against the dollar after the BoJ's shock move on Friday, the final trading day of a jittery January in which the safe-haven yen had risen to levels not seen in over a year.
But after a survey of Chinese manufacturers showed factory activity in the world's second-largest economy contracted for an 11th straight month in January, the yen's fall abated and it traded flat at 121.15 against the dollar. The BoJ's move to adopt negative rates only cemented expectations the European Central Bank would ease further, sending yields on German government bonds of up to five years' maturity below the ECB's deposit rate on Monday.
"The broader macro focus is on the back of the BoJ and whether that's going to pull the other key central banks with it," said Bank of Tokyo-Mitsubishi UFJ strategist Derek Halpenny in London. "In that sense, the data over the week ahead is going to be pretty crucial, and that's where we going to get our direction ... That's why we're sitting where we are with not too much price action."
The yen was roughly flat on Monday at 121.30 against the dollar, having traded as weakly as 121.70 yen per dollar on Friday. With the weak data also driving oil prices back down, commodity-linked currencies suffered. Oil-rich Canada's dollar fell half a percent against its US counterpart.
Australia's and New Zealand's dollars, which are used as proxies by investors for plays on China, also fell back. But Societe Generale currency analyst Alvin Tan, in London, said it was too soon to write off investors' newly refound appetite for risk. He also said data would be key this week, in particular purchasing managers' index (PMI) surveys and US labour market data on Friday. "The market wants validation ... that an improvement in risk sentiment makes sense in order to carry on with this risk rally," he said. Some analysts believed the BoJ's surprise easing was partly aimed at forestalling the yen's appreciation.
"BoJ Governor (Haruhiko) Kuroda added that the central bank is ready to lower rates further if needed," wrote Naohiko Baba, chief Japan economist at Goldman Sachs in Tokyo. "This was likely aimed to keep retaining the currency market's attention and prevent the yen from rising."