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 The Japanese currency, traditionally sought at times of risk
aversion, had come off the previous day's highs after China pumped
an estimated $20 billion into the market, stabilizing share prices
after Monday's 7 percent slide.
But as European shares turned lower, the Japanese currency soared by
more than 1 percent against the euro, hitting its strongest in over
eight months at 127.87 yen. Against the dollar, the yen rose toward
an 11-week high of 118.705 hit on Monday, up 0.4 percent on the day
at 118.83 yen.
"Yesterday there was a pretty significant risk-off move. Today
that's moderated, but we're still in risk-off mode," said Sam
Lynton-Brown, currency strategist at BNP Paribas in London.
The euro hit a one-month low of $1.0752, down 0.7 percent on the
day. That was despite the fact it has tended recently to perform
well at times of market uncertainty, as investors who had held
euro-funded carry positions -- in which a low-yielding currency is
borrowed and then sold in favor of a riskier, higher-yielding one --
have bought back euros.
The dollar hit a one-month high against a basket of major peers, up
0.4 percent at 99.299.
"The real surprise here is that the dollar is holding up better than
might be expected versus the funding currencies, in particular
euro/dollar," Lynton-Brown added. "We'd argue this is likely due to
the yield support for the dollar. The two-year (Treasury yield)
holding above 1 percent is quite significant for the dollar."
Data showing euro zone core inflation slowed for the second
consecutive month in December added to the single currency's woes,
and reinforced expectations the European Central Bank will have to
add further monetary stimulus to prop up consumer prices and boost
growth.
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Earlier, Shanghai shares managed to limp up 0.2 percent after
Chinese regulators said they may restrict stock sales by major
shareholders.
"China looks to be the main theme for 2016, as developments there
could unsettle equities while disrupting the Fed's intended rate
hike schedule," said Junichi Ishikawa, market analyst at IG
Securities in Tokyo.
"China risk adds a layer of support to the yen, which already looks
to appreciate this year as Japan's current account surplus grows at
a faster-than-expected pace," he said.
Sweden's crown fell 0.3 percent to 9.2355 crowns per euro, following
a decision on Monday by the country's central bank to allow it to
intervene instantly against the currency to help bring ultra-low
inflation back to its target.
(Additional reporting by Shinichi Saoshiro in Tokyo; Editing by
Catherine Evans)
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