Yen Strengthens as Oil Price Drop Weighs on Market Sentiment

The yen strengthened against its rivals during Asia trade Wednesday after oil prices touched a new 12-year low, damping market sentiment and leading investors to seek the perceived safety of the Japanese currency.

Around 0450 GMT, the dollar weakened to Y117.00 from Y117.57 late Tuesday in New York.

That triggered renewed selling of Tokyo stocks, with the benchmark Nikkei Stock Average extending its losses to slide to as low as 16,475.32, or down 3.4%, its lowest since October 2014. The Shanghai Composite Index recently traded down 1.4%.

The damping of risk sentiment pulled down the dollar to as low as Y116.87.

“We are seeing the market unable to find a catalyst for a turnaround,” said Ayako Sera, head of the research team at Sumitomo Mitsui Trust Bank.

In addition, the cloudy outlook for the U.S. economy conveyed by downbeat retail sales and industrial output last week makes it “difficult for many currency dealers to build up dollar long position,” she said.

The recent volatility shows “it’s too early to confirm the global financial market’s bottomed out” until there are actual signs that oil and resources prices have stopped their declines, said Osamu Takashima, chief foreign-exchange strategist at Citigroup Global Markets Japan in a morning note.

The International Energy Agency said Tuesday that oil prices could fall further this year as the market faced an ” enormous strain” on its ability to absorb new supplies from producers such as Iran.

The Japanese currency also strengthened Wednesday against the euro, which declined to Y128.11 from Y128.30 late Tuesday.

The U.K. pound dropped to Y165.39, its lowest since February 2014, before rebounding slightly to Y165.57, compared with Y166.67 late Tuesday. The pound has already come under selling pressure after Bank of England Governor Mark Carney signaled that U.K. central-bank officials were unlikely to raise interest rates soon.

Against the backdrop of a persistent risk-off mood, the Australian dollar fell to Y80.38 from Y81.37. In other currency-pair trade, the euro gained against the dollar, with the common currency changing hands at $1.0949 from $ 1.0911.

The WSJ Dollar Index, a measure of the dollar against a basket of major currencies, was down 0.10% at 91.41.

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