SYDNEY (Reuters) - The yen held on to gains early in Asia on Thursday but could see renewed pressure as flows linked to Japan’s financial year-end look to have peaked.
Traders said this means yen demand for repatriation purposes should ease and investor could switch back to using the low-yielding unit as a funding currency for carry trades.
“Investors are free to resume switching out of USD and EUR funding into the JPY,” said Sebastien Galy, strategist at Societe Generale.
For now, it remained firm against the dollar, euro and commodity currencies. The dollar bought 82.94 yen, down from Tuesday’s high of 83.38, while the euro fetched 110.43 yen versus this week’s peak of 111.25.
The Australian dollar slipped to 86.16 yen, having carved out a near one-week low of 85.60. It also lost ground against the greenback, sliding to a near one-week trough of $1.0387, well off Tuesday’s peak of $1.0557.
Analysts said worries about a hard economic landing in China, Australia’s single largest export market, remained a dead weight for the currency.
“With the Chinese stock markets under pressure, the outlook on AUD will unlikely turnaround until we see some confirmation that the Chinese economy is not weakening too much and which should be affirmed by the release of the Chinese PMI (on Sunday),” said analysts at BNP Paribas.
On Wednesday, the Shanghai Composite Index .SSEC fell 2.7 percent, posting its biggest fall since November. That was not good news for a market already worried about a sharp slowdown in the world's second biggest economy.
Given these fears and distortions from year-, quarter- and month-end flows, the dollar-weakening effect of Fed Chairman Ben Bernanke’s recent comments has all but faded.
Early in the week, the dollar took a hammering after Bernanke gave a cautious outlook on the economy that kept alive expectations of further stimulus.
The dollar index .DXY fell to a near one-month low of 78.770 on Tuesday, but has since recovered to 79.158. As a result, the euro has retreated from a high of $1.3385 to $1.3317 currently.
Investors will closely watch the outcome of a Italian bond sale as Rome aims to sell up to 8.25 billion euros of debt.
The sale though is expected to be well supported. A report on Wednesday showed banks in Italy and Spain have been stocking up on government bonds, while others have cut corporate lending, suggesting the flood of ECB cash has yet to bolster flagging businesses in the wider economy.
Ahead of that, retail sales data from Japan is due at 2350 GMT, followed by German unemployment report later in the day.
Editing by Wayne Cole