SINGAPORE (Reuters) – The dollar nursed its losses against the yen on Thursday, having suffered its biggest one-day drop in nearly eight months following a report that China was ready to slow or halt its purchases of U.S. Treasuries.
Officials reviewing China’s foreign-exchange holdings have recommended slowing or halting purchases of U.S. Treasuries, Bloomberg News reported on Wednesday, citing people familiar with the matter.
The report sent U.S. 10-year Treasury yields to 10-month highs and dented the dollar on Wednesday, which slid nearly 1.1 percent on trading platform EBS, its biggest one-day percentage fall versus the yen since last May.
The dollar regained some ground on Thursday, edging up 0.1 percent to 111.54 USDJPY
While it is conceivable that China could make some adjustments to its foreign reserve holdings, it seems “highly unlikely” that China will stop buying U.S. Treasuries, said Stephen Innes, head of trading for Oanda in Singapore.
However, Innes said the uncertainty over China’s stance could potentially dampen investors’ risk appetite, while the dollar would likely face headwinds against the yen due to speculation about the Bank of Japan’s future exit from its massive stimulus policy.
The yen has risen this week after the Bank of Japan on Tuesday trimmed its buying of long-dated Japanese government bonds in market operations.
While the BOJ move on Tuesday was a technical tweak in line with the central bank’s policies to date, it unleashed a wave of speculation that the BOJ could be poised to begin winding down its stimulus.