Yen Rises After China Data Point to Slowdown

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The yen rose on Monday as China’s manufacturing data pointed to slowing activity, keeping market participants from buying riskier, higher yielding currencies.

Data showed on Sunday China’s official manufacturing purchasing managers index remained unchanged at 49.8 in October from a month ago, undershooting the 50.0 level expected.

The Caixin China manufacturing purchasing managers index, a private-sector gauge, rose to 48.3 in October from 47.2 in September, according to data released Monday. A reading below 50 indicates a contraction in manufacturing activity from a month earlier.

Signs of deterioration in China’s economy tend to encourage buying of the Japanese yen against the Australian dollar and other higher yielding, riskier currencies.

The dollar declined to Y120.33 as of 0505 GMT, compared with Y120.62 late Friday in New York, according to EBS. The Australian dollar fell to Y85.90 from Y86.07.

Some economists say the Bank of Japan keeping its policy unchanged on Friday could mean the yen would soon regain its strength. Under Gov. Haruhiko Kuroda, the BOJ introduced an aggressive asset purchase program in April 2013 to reflate the economy, resulting in a cheaper yen.

Still, others say as long as the easing continues, any strength in the yen would be temporary, particularly when the U.S. Federal Reserve is looking to start raising rates.

“Japan has been passed a baton (of easing),” Michiyoshi Kato, senior vice president of forex sales at Mizuho Bank. ” And the easing is likely prolonged.”

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