Trade fears and falling yields push yen to two-week highs vs dollar

The Japanese yen firmed to a two-week high versus the dollar on Wednesday as concerns of a further escalation in the trade conflict between the United States and China prompted investors to rush to perceived safe-haven assets.

A global wave of risk aversion sent sovereign bond yields tumbling across the world. Benchmark U.S. Treasury yields fell to their lowest levels since September 2017 while New Zealand bond yields tumbled to a record low.

The People’s Daily newspaper, owned by China’s ruling Communist Party, said Beijing was ready to use rare earths for leverage in its trade war with the United States. It added in an extremely strongly worded commentary “don’t say we didn’t warn you”.

The yen edged 0.2 percent higher to 109.15 against the dollar, its highest level since May 15 this year and not far away from an early February high of 109.02 yen.

But the dollar’s losses remain broadly confined against the yen as the greenback remained firm against other currencies such as the euro and the pound.

The dollar – bolstered by its status as the world’s reserve currency – was less than half a percent below a two-year high of 98.37 hit last week against a basket of its rivals. It was broadly steady at 97.97.

“Investors currently regard the greenback as the go-to instrument in a time when global growth is threatening to turn lower on the back of a trade dispute and political fragmentation abroad,” said Konstantinos Anthis, head of research at ADSS.

The U.S. Treasury Department said in a report on Tuesday it reviewed the policies of an expanded set of 21 major U.S. trading partners and found that nine required close attention due to currency practices: China, Germany, Ireland, Italy, Japan, South Korea, Malaysia, Singapore, and Vietnam.

Shusuke Yamada, currency and equity strategist at Bank of America Merrill Lynch, said the report had a muted impact on risk sentiment, adding that investors are watching how the United States and China will deal with their trade dispute going into the G-20 meeting in Japan next month.