The yen strengthened, heading for its biggest three-day gain versus the dollar in more than a year, as a decline in shares around the world and slowing growth in China boosted demand for haven assets.

Japan’s currency advanced against all of its 16 major counterparts as a measure of global currency volatility climbed to a 15-month high. A gauge of the dollar dropped for a third day before the Federal Reserve meets next week. Australia’s currency gained for the first time in 10 days, snapping the longest losing streak since it was freely floated in 1983.

“It looks like the yen’s entered a correction mode and it may not end that quickly,” said Yuji Kameoka, chief currency strategist in Tokyo at Daiwa Securities Co. “We’re seeing some correction in global stocks as well, though they haven’t peaked out, and what we are seeing in the yen may be similar to that.”

The yen jumped 0.6 percent to 118.96 per dollar at 2:31 p.m. in Tokyo, extending its three-day gain to 2.1 percent, the most since the period ended Aug. 7, 2013. Japan’s currency rose 0.5 percent to 147.40 per euro. The dollar declined 0.1 percent to $1.2392 per euro.

The MSCI Asia Pacific Index of shares slid 1.2 percent after China’s National Bureau of Statistics said consumer-price inflation slowed to 1.4 percent in November, the least since November 2009. Producer prices fell 2.7 percent, more than economists predicted. The MSCI World Index (MXAP) of equities dropped for a third day.

China yesterday took one of its biggest steps yet to push local governments away from using opaque financing vehicles to raise money as policy makers seek to reduce leverage.

‘Leg Lower’

“Should stocks extend declines, dollar-yen may take another leg lower, but the drop we have seen so far seems like a correction that’s not going to last,” said Naohiro Nomoto, an associate for currency trading at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “I’d like to buy dollars on dips heading into the Fed meeting next week.”

JPMorgan Chase & Co.’s global foreign-exchange volatility index rose two basis points to 9.50 percent after increasing to 9.58 percent yesterday, the highest since September 2013.

Even after advancing for three days, the yen has still slumped 5.6 percent in the past three months, the worst performer after Norway’s krone of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar gained 6.4 percent and the euro rose 1.6 percent.

Dollar Index

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against those of 10 trading partners, dropped 0.2 percent to 1,113.39 after falling 0.6 percent during the previous two days.

The Fed next meets on Dec. 16-17. Policy makers will increase their benchmark interest rate from the current range of zero to 0.25 percent in about eight months, according to data compiled by Morgan Stanley.

Australia’s dollar rallied after its record-long daily slide had sent it to a four-year low.

The Aussie appreciated 0.4 percent to 83.22 U.S. cents after falling to 82.24 U.S. cents yesterday, the lowest level since June 2010.

The currency strengthened ever after Westpac Banking Corp. and Melbourne Institute said their index of consumer confidence in the nation worsened this month.

New Zealand’s dollar gained for a second day before the central bank meets tomorrow.

The Reserve Bank of New Zealand will keep its official cash rate at 3.5 percent, according to all of the 14 economists surveyed by Bloomberg News. It won’t resume raising the benchmark until at least the third quarter of 2015, according to the median forecast.

New Zealand’s dollar advanced 0.3 percent to 77.01 U.S. cents after dropping to 76.09 cents yesterday, the lowest level since June 2012.

 

Source: Bloomberg – Yen Heads for Biggest 3-Day Gain in a Year as Volatility Rises

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