THE offshore yuan yesterday rose for the first time in five days after China stepped up defense of its currency to ward off speculators betting on depreciation.

    Those entering short positions in the yuan are expected to “suffer huge losses” as Chinese policymakers will take measures to stabilize the exchange rate, according to a commentary Saturday by Xinhua.

    Yuan stability is of “paramount importance” as the central bank is refraining from cutting banks’ reserve requirements because such a move could weaken the currency, Hong Hao, chief China strategist at Bocom International Holdings Co. in Hong Kong, wrote in a note yesterday.

    “The commentary is a very clear message to speculators,” said Sean Callow, a foreign-exchange strategist in Sydney at Westpac Banking Corp. “There could be some further tweaking of limits on capital flows, but in the short term the main tools are likely to be steady fixings plus intervention” as China seeks to prevent sharp declines, he said.

    The yuan traded in Hong Kong gained 0.11 percent to 6.6062 a dollar in the morning, reversing a four-day drop of 0.4 percent. The onshore currency was little changed at 6.5796, according to China Foreign Exchange Trade System prices. The People’s Bank of China strengthened its daily fixing in Shanghai by 0.02 percent to 6.5557.

    Reckless speculation and vicious shorting of the yuan will face higher trading costs, possibly with severe legal consequences as the government improves regulatory mechanisms and the legal system, Xinhua said. The nation has sufficient resources and policy tools to keep the economic situation under control and deal with any external challenges, it said.

    China has no intention of devaluing the yuan and fluctuations in the exchange rate are the result of market forces, the nation’s Vice President Li Yuanchao said Friday. Shanghai will pioneer the currency’s capital-account convertibility and start a program that allows Chinese individuals to invest overseas at an “appropriate time,” Mayor Yang Xiong said Sunday.

    Ma Jun, chief economist at the central bank’s research bureau, said this month that the yuan will be more stable against a basket of currencies but become more volatile versus the greenback as China reforms its exchange rate system.

    China should impose capital controls to defend the yuan rather than keep burning through currency reserves, Bank of Japan Governor Haruhiko Kuroda said Saturday. (SD-Agencies)