* Yen testing January high as global tensions heighten
* Hong Kong unrest, Argentina market rout add support to yen
* Graphic: World FX rates in 2019
(Adds details and quotes, updates prices)
By Shinichi Saoshiro
TOKYO, Aug 13 (Reuters) - The yen traded close to a seven-month
high against the dollar on Tuesday, as unrest in Hong Kong and
gyrations in Argentina's markets heightened investor risk aversion and
fanned demand for the safe-haven Japanese currency.
The yen was at 105.495 per dollar after brushing 105.050
overnight, its strongest since Jan. 3.
The Japanese currency, which attracts flight-to-safety flows in
times of market turmoil, has been on a solid footing this month,
supported by factors such as U.S.-China trade tensions and the
prospect of further monetary easing by the U.S. Federal Reserve.
The currency has received a fresh boost from deepening unrest in
Hong Kong, where the international airport was closed to flights for
several hours on Monday amid ongoing demonstrations. Surprise primary
election results in Argentina, which resulted in a rout in the
country's peso currency, stocks and bonds, have also added support.
"It's the 'risk off' in the market generated by events in
Hong Kong and Argentina that is feeding demand for the yen," said
Yukio Ishizuki, senior currency strategist at Daiwa Securities.
"Speculators are increasing their long positions on the yen."
"There really are no signs of the yen's advance
abating," Ishizuki added. "The next target is the yen's high
reached against the dollar early in January, but even that threshold
won't present much of an obstacle at this rate."
The Japanese currency has gained for the past four trading days
against the greenback. A move beyond 104.100 per dollar, this year's
high scaled at the start of January, would take the yen to its highest
level since November 2016.
"The shrinking spread between U.S. and Japanese yields has
thrust dollar/yen into a downtrend, despite recent bouts of global
equity market strength," said Junichi Ishikawa, senior FX
strategist at IG Securities in Tokyo.
U.S. Treasury yields have declined steadily on the back of global
economic concerns and the prospect of the Fed cutting rates in the
months ahead. The spread between U.S. and Japanese benchmark 10-year
yields has shrunk to its narrowest since November 2016 this month as a result.
The euro dipped 0.25% to $1.1188, handing back the previous
day's modest gains.
The single currency had edged higher on Monday after Italian bond
yields pulled back from five-week highs on relief that rating agency
Fitch left the country's credit rating unchanged.
Longer-term prospects for the euro remain grim with the European
Central Bank widely expected to ease policy as early as September and
on lingering concerns towards Italy, where its deputy prime minister
and right-wing League party leader Matteo Salvini has called for early elections.
The Australian dollar crawled up 0.15% to $0.6759 as the
Chinese yuan found a bit of traction after the People's Bank of
China set a midpoint rate at a fresh 11-year low but a level that was
firmer than expected.
The Aussie had lost 0.5% the previous day, slipping in sympathy
with the yuan amid little sign of progress in U.S.-China trade
relations. The Aussie is sensitive to developments in China,
Australia's largest trading partner.
Argentina's peso lost roughly 15% to 52.15 per dollar on Monday
after brushing an all-time low of 61.99.
Fears of a possible return to interventionist policies, and by
extension a possible debt default, gripped the market after
conservative Argentina President Mauricio Macri lost by a much
wider-than-expected margin to the opposition in presidential
US-Japan yield spread, dollar/yen
(Editing by Jane Wardell and Jacqueline Wong)