The trade-weighted index takes account of the fact that China has major trade with the euro zone and Japan, so that movements in the yuan’s value relative to the euro and the yen (and other currencies) are relevant.
Advertisement
In Tokyo, the dollar rose to 118.21 yen from 117.65 yen Thursday in NY, although it is still well down from levels above the 120 yen mark seen earlier in the week. “What markets don’t like above all is that there is no telling what the Chinese central bank is trying to do on the yuan”, said Teppei Ino, currency analyst at Bank of Mitsubishi-Tokyo UFJ in Singapore.
Authorities also set the central rate for the yuan currency marginally higher against the U.S. dollar on Friday, ending eight days of falls that were also blamed for the global turmoil. Traders dumped the yuan after China’s central bank fixed its value 0.22 percent lower, another official devaluation.
China sets an exchange price that its economists believe is defensible against outside speculation, and then the bank uses its considerable (but decreasing) foreign currency reserves to fix that price.
Emerging Asian currencies are likely to weaken as they react more significantly to yuan, he added.
The December figure missed market expectations of 3.40 trillion according to a Reuters poll.
For longer-term players in China, that nation’s gradual transition from an export-driven, heavy industrial economy to a consumer-driven, domestic consumer one, means it’s better to swallow the negative currency impact than pull out of China entirely.
In a statement on its website, the central bank said it was determined to keep the exchange rate stable to fend off speculative forces.
“If China depreciates faster, that will spread, and markets also feel the Chinese government is getting more anxious about the economy”. In total, reserves fell by about $500 billion in 2015.
Foreign exchange reserves were key for China to maintain financial stability as it opened up the capital account and embraced a freer exchange rate system, said Huang Yiping, a member of China’s monetary policy committee and a Peking University professor.
On Thursday, the U.S. Department of Labor said the number of individuals filing for initial jobless benefits in the week ending January 1 decreased by 10,000 to 277,000 from the previous week’s total of 287,000, which was the highest since mid-July.
At the same time, demand is slowing, especially in Asia where the biggest economy and energy consumer, China, is seeing the slowest economic growth in a generation.
Advertisement
“The PBOC is intervening, there are a lot of capital outflows, and the yuan is facing larger depreciation pressure”, Chen Xingdong, a Beijing-based chief China economist at BNP Paribas SA, told Bloomberg.
