Investing.com - The yen rose to four-and-a-half month highs against the dollar on Thursday and strengthened against the other major currencies as China continued to guide the yuan lower, adding to fears over the outlook for the world’s number two economy.
USD/JPY hit overnight lows of 117.68, the weakest since August 24 and was last at 118.12, off 0.3% for the day.
Market sentiment was hit after the People's Bank of China set its official yuan midpoint rate lower compared with Wednesday's fix.
It was the largest daily drop in the midpoint rate since last August, when an unexpected almost 2% devaluation of the currency sparked a broad based selloff in markets.
A weaker yuan would help boost Chinese exports.
While investors had expected the central bank to allow the currency to fall further amid an economic slowdown, the rapid pace of the depreciation has fueled fears that the world’s second-largest economy is weaker than believed.
Adding to risk aversion, trading on China’s stock markets was suspended for the second time this week after a plunge of more than 7% after the open.
The euro was trading near eight month lows against the yen, with EUR/JPY at 127.12.
The single currency was steady against the dollar, with EUR/USD at 1.0774.
The euro found some support after the minutes of the Federal Reserve’s December meeting showed that some officials expressed concerns that inflation could remain at stubbornly low levels, even as they decided to hike interest rates.
The yen was at 14-month highs against the broadly weaker pound, with GBP/JPY dropping 0.93% to 171.75 as concerns over a referendum on whether the U.K. should remain in the European Union weighed.
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was little changed at 99.31.