SHANGHAI: China's yuan closed little changed on Tuesday after the central bank set its daily midpoint virtually flat, strengthening expectations that authorities will not guide the currency sharply weaker in response to monetary easing by Japan.
The People's Bank of China (PBOC) maintained its usual practice of setting its midpoint stronger in response to a fall in the dollar's value against global currencies overnight, but the change on Tuesday was marginal at only 0.02 percent.
Spot yuan continues to trade extremely close to the strong-side limit of its daily trading band, indicating that the central bank's midpoint is acting as a restraint on market pressure pushing for appreciation.
The market has interpreted the PBOC's relatively stable midpoints this week as a sign that the central bank will not respond aggressively to Japan's launch of a new massive monetary policy stimulus, which has pushed the yen to a 47-month low against the dollar.
In terms of export competitiveness, analysts say China faces little risk from a weaker yen. "China, while often cited, should be far less impacted" than Japan and Korea, Frederic Neumann, co-head of Asian economics research for HSBC in Hong Kong, wrote in a note to clients on Monday.
After hitting a record high of 6.1986 against the dollar last week, traders expect the yuan to maintain its slow pace of appreciation, fuelled by a robust trade surplus and signs of speculative capital inflows in the early months of this year.
Analysts still expect the yuan to gain 1 to 2 percent for full-year 2013, placing the exchange rate around 6.14 by year-end.
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