Yen outperforms USD up 5.3 pct in five weeks

The yen surged on Thursday as investors scrambled into the perceived safety of the Japanese currency after a shock revenue warning from Apple exacerbated concerns about a Chinese and broader global economic slowdown.

The yen at one point was 4.4 per cent stronger versus the dollar after a flurry of automated orders triggered a 'flash crash' in thin Asian markets. It later stabilised but the yen remains on course for its biggest one-day rise in 20 months.

Such big moves in foreign exchange markets reflect deep and growing angst about the global economy - the yen has traditionally been the go-to currency in times of stress because traders believe the legions of Japanese investors holding money overseas will rush back into Japan when markets are in flux. The yen, up 5.3 per cent in five weeks, is the best performing major currency since early December when worries about the direction of the global economy intensified.

Weakness in the dollar also reflects concerns about the U.S. economy and a drastic shift in investor expectations for interest rate rises, with many now calling the end of the Federal Reserve's rate-hiking cycle. "It's a continuation of some of the market anxieties related to China, the U.S. and more specifically there is a reevaluation of the dollar as a safe-haven," said Jane Foley, a currencies analyst at Rabobank.

"The underlying trend has been there for all of December. The move was exacerbated by the thin liquidity, the flash crash, but the trend, the bias, is not surprising," she said, describing the yen as the "safer safe haven". The break of some key technical levels in early Asian trading on Thursday triggered massive stop-loss sales, forcing investors to unwind some of their large short yen trades against the dollar and quickly cascading into other currencies.

The dollar collapsed to as low as 104.10 yen in early Asian trading when liquidity is thin, a drop of 4.4 percent from the opening level of 108.87 and the lowest reading since March 2018. The yen last traded at 107.57 yen, down 1.2 percent on the day. At session lows, it has fallen more than 6.5 percent in the last five trading sessions.

ILLIQUID MARKETS

The yen reserved some of its biggest gains against the traditional high-yielding currencies favoured by domestic retail investors such as the Australian dollar and the Turkish lira. The selling quickly gathered momentum in illiquid markets, with Japan still on holiday after the New Year.

"The sharp drop in risk sentiment fueled by weaker PMI data in China and Europe and Apple's warning has contributed to the sharp overnight move in the yen," said Valentin Marinov, head of G10 FX research at Credit Agricole.

The yen's surge against the dollar also pushed it higher against other major rivals such as the pound and the euro. Market watchers say the yen's surge may have further room to run as Japanese investors that have recently piled into overseas assets unhedged are forced to cover their positions.

Elsewhere, the dollar was down 0.3 percent against a basket of its rivals at 96.559 while the euro rose 0.2 percent to $1.1368. The Australian dollar, a barometer of global sentiment that tends to track Chinese economic fortunues fell 0.3 percent to $0.6963 after earlier tumbling to $0.6715, a near-decade low. 

(With inputs from agencies.)