LONDON: The Japanese yen fell to a fresh two-decade low on Wednesday after the Bank of Japan stepped into the market again to defend its ultra-low interest-rate policy, drawing a sharp contrast with the United States where Treasury yields hit new highs.
The BOJ again offered to buy unlimited amounts of Japanese government bonds to check the rise in Japanese 10-year yields, which were butting against its 0.25% tolerance ceiling.
In contrast Treasury yields marched to three-year highs while inflation-adjusted bond yields hit positive territory for the first time since March 2020 as hawkish comments by policymakers reinforced expectations of aggressive US interest rate hikes.
The US dollar reached 129.43 yen for the first time since April 2002 in Asian trading before easing to last trade 0.21% lower at 128.615.
It has declined for 13 consecutive sessions before Wednesday’s bounce, a losing streak that according to Caxton is the biggest losing streak in half a century.
“The 130 is a psychological level; if we break it (likely) then momentum will likely drive USDJPY even higher,” said Vasileios Gkionakis, EMEA head of FX G10 Strategy at Citibank.
“This is a play on monetary policy divergence with the Fed in tightening mode and the BoJ still easing.”
The dollar’s rally against the yen has come as US Treasury yields pushed higher, with 10-year yields touching 2.981% for the first time since December 2018 in Tokyo trading. Inflation-adjusted US 10-year yields hit 0% overnight.
“The yen remains the loser of the monetary policy normalisation,” Commerzbank strategists said.
The dollar index, which measures the currency against six major peers including the yen, early in the day matched Tuesday’s high at 101.03 - a level not seen since March 2020 - before easing to 100.76, down 0.3% in the day.
An index of currency market volatility firmed above 8% but still well below 2022 highs of 10% hit in March.