Dollar Rebounds Versus Yen

NEW YORK — The U.S. dollar recovered from a nearly two-month low against the Japanese yen, as the greenback remained vulnerable to major rivals amid heightened worries about risk in emerging markets.

The dollar recently rose to ¥102.41 from ¥102.30 late Friday. The greenback fell as low as ¥101.73 early Monday, according to FactSet data.

Japan’s trade deficit posted a surprise increase in December, with exports rising to 15.3% and imports growing 24.7% from a year ago.

The dollar dropped nearly 2% last week against the Japanese currency, with the yen bearing the role of a safe-haven asset after data showing an unexpected contraction in the Chinese manufacturing sector this month helped trigger a global selloff.

Dollar Rebounds Versus YenCapital flight remains an issue for emerging-market currencies and has become worse than in August, said Richard Gilhooly of TD Securities. Currencies like the Indian rupee plunged against the dollar in August on speculation that the Federal Reserve could begin to slow its asset purchases, which pushed yields higher. Rising yields make it more expensive for countries to fund their current-account deficits.

“While economic growth is plummeting in these regions, past inflation is still working its way through and complicating the resolution of a volatile period post-crisis, when capital inflows caused over-heating and subsequent outflows have led to abrupt currency adjustment,” he said in a note.

“These adjustments are ongoing and are now occurring against the backdrop of falling Treasury yields as the net impact is seen to be deflationary and negative for world growth,” said Mr. Gilhooly.

The yield on the U.S. benchmark 10-year note fell 0.09 percentage point last week, with bond prices climbing as investors fled emerging-market assets.

The Fed announced the beginning of a long process to normalize monetary policy in December, when it said it would slow its monthly bond buys by $10 billion in January. The Fed is broadly expected to continue reducing its monthly bond purchases at its two-day meeting ending Wednesday.

“The sharp drop in U.S. Treasury yields will undermine the [U.S. dollar] further in the near term, however, and the mixed slate of U.S. data releases will offer the currency little assistance,” said Mitul Kotecha, head of global currency strategy at Crédit Agricole, ACA.FR -0.90% on his Econometer blog on Monday.

The euro edged down to $1.3667 from $1.3677 late Friday. The British pound rose to $1.6576 from $1.6504. The pound last week broke above the $1.66 mark for the first time since May 2011.

While the dollar has struggled in recent sessions against major rivals, it has jumped against emerging-market currencies that have been hurt by worries about slowing global growth, as well as rattled by country-specific developments.

Argentina’s peso slid roughly 18% last week after the central bank backed off from intervention efforts aimed at preventing a further decline in foreign reserves.

The dollar bought 8.0246 Argentine pesos versus 8.0130 pesos on Friday, according to FactSet. Argentina’s central bank on Friday reportedly stepped back into the currency market to stem the peso’s fall.

The greenback on Monday eased to 2.3092 Turkish lira from 2.3376 lira on Friday, when the dollar recorded its 10th consecutive win against the currency. The lira has been dogged by a government corruption scandal that’s prompted mass protests calling for the resignation of Prime Minister Recep Tayyip Erdogan.

Meanwhile, the Australian dollar rose modestly to $0.8735 from Friday’s $0.8703.

The ICE dollar index was at 80.514 compared to 80.457 late Friday, while the WSJ Dollar Index, a rival gauge of the greenback, was steady at 74.10.

Crédit Agricole’s Mr. Kotecha said capital flows from Asian equity markets have risen in recent weeks, with the Philippines, South Korea and Thailand poised to register outflows for January.

“Against this background it is unsurprising that both the [South Korean won] and the [Philippines peso] are the two worst-performing Asian currencies so far this year. While I expect a reversal in both, the near-term outlook is for further pressure,” he wrote.


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