Chinese yuan mixed, Japanese yen weaker ahead of expected stimulus

China’s yuan saw mixed trading on Wednesday morning after the central bank set a stronger reference point for the currency.

Offshore yuan in Hong Kong strengthened following a stronger mid price setting on Wednesday, trading at 6.6860 to the US dollar at 10.10am, 0.07 per cent, or 44 points higher than on Tuesday.

Onshore yuan in Shanghai headed in the opposite direction, trading slightly weaker at 6.6704 to the US dollar at 10.10am, 0.02 per cent or 14 points lower than on Tuesday.

The People’s Bank of China on Wednesday set the yuan reference point against the US dollar at 6.6671, 107 basis points or 0.16 per cent stronger than on Tuesday.

Traders are allowed to trade up to 2 per cent either side of the reference point for the day.

Japanese yen weakened on Wednesday morning, dropping 0.5 per cent to 105.15 per dollar at 10.10am on expectations of significant monetary stimulus by the Bank of Japan later in the week.

“On the Bank of Japan policy front, the market is expecting at minimum a combination of a deeper move into negative interest rate territory, along with an expansion of the monetary base,” said Stephen Innes, senior trader at Oanda Asia Pacific. “As expectations are clearly elevated, we should expect an explosive reaction to any outcome as Japanese yen is unlikely to stray from leading this week’s news headlines.”

Japanese financial daily Nikkei reported on Tuesday that Japan’s government is likely to inject 6 trillion yen (US$57 billion) in direct fiscal outlays into the economy over the next few years under a planned stimulus package.

“While double the amount initially planned, sadly it was shy of the 10 to 20 trillion anticipated by traders,” Innes added. “If there are any a helicopters circling, they are certainly stealthy ones.”

In other currency trading, the British pound was stronger, up 0.11 per cent to US$1.3108 on Wednesday morning while the euro strengthened 0.04 per cent to 1.0992.