Yuan Dips as Trade War Resumes, Yen Boosted by Rate Hike Speculation

The yuan weakened amidst a fresh U.S.-China trade conflict, while the yen gained on speculation of upcoming Bank of Japan rate hikes. The People's Bank of China set a strong midpoint rate, limiting dollar gains against the yuan. Traders anticipate further BOJ rate hikes as a response to increased Japanese wages.

The yuan fell in value on Wednesday as a renewed U.S.-China trade conflict impacted Chinese markets returning from the Lunar New Year holiday. In contrast, the yen strengthened against the dollar due to heightened expectations of Bank of Japan rate increases this year.

The dollar rose 0.47% against the yuan, reaching 7.272 in onshore trading. However, the gains were moderated by a stronger-than-expected midpoint rate set by the People’s Bank of China. This rate dictates the currency's allowable 2% trading band.

Investors closely monitored Beijing's actions to determine if China would let the currency depreciate to counteract new U.S. tariffs. Meanwhile, the offshore yuan showed marginal strength, and the dollar index fell as the yen gained momentum from substantial Japanese wage growth news.

(With inputs from agencies.)