SINGAPORE: The Japanese yen wobbled in volatile trading on Wednesday as ructions in the bond market kept the spotlight on the fiscal health of major economies while the US dollar steadied after a strong end to the previous session due to upbeat economic data.
The yen was last little changed at 144.345 per dollar in early trading after dropping 1% on Tuesday in the wake of reports that Japan will consider trimming issuance of super-long bonds after a sharp rise in yields in recent weeks.
The focus will remain on the Japanese bond market, with an auction of Japan’s longest-tenor bonds due on Wednesday a litmus test for appetite for that type of debt as investors weigh worsening finances of major government issuers.
The longest-dated Japanese government bond yields soared to all-time highs last week after a poor 20-year debt auction. On Wednesday, the yield on Japanese government bonds was slightly higher after a sharp dive in the previous session.
Charu Chanana, chief investment strategist at Saxo, said the auction in Japan was unlikely to draw strong demand amid the recent surge in long-end yields.
“Even if the results are solid, a sustained decline in yields looks unlikely given BOJ policy uncertainty and fiscal concerns ahead of the July elections,” she said.
“For the yen, risks remain two-way - policy uncertainty keeps upside pressure intact amid haven flows, but a softening in US tariff rhetoric could limit gains,” Chanana added.
The yen has gained nearly 9% so far in 2025 due to dollar weakness and safe-haven flows as investors flee US assets in the wake of the erratic trade policies under President Donald Trump that have roiled markets.
Fiscal outlook
Fiscal worries are front of mind for investors after Moody’s downgrade of the US credit rating on a rising debt burden this month and soft demand for a US Treasury Department bond auction last week that lifted 30-year Treasury yields above 5%.
Dollar set to end week on a high, yen at five-month low
US Treasury yields were slightly elevated on Wednesday after they dipped in the previous session.
The euro was flat at $1.1325 after dropping 0.5% in the previous session as a bout of dollar buying hit the markets amid signs of possible trade deals and data showing US consumer confidence in May was much better than expected.
The US dollar was also boosted by Trump’s decision to delay higher tariffs on the European Union over the weekend.
Still, new orders for key US-manufactured capital goods plunged by the most in six months in April as the flip-flopping tariff salvos take a toll on the economy and businesses.
Sterling last bought $1.3516 but stayed close to the three-year high touched on Monday, while worries about Britain’s stretched finances have also weighed on investor appetite for the country’s debt.
The dollar index, which measures the US currency against six rivals, was last at 99.574.
The Australian dollar was muted at $0.6443, a week after the country’s central bank lowered interest rates by 50 basis points.
The New Zealand dollar was last slightly weaker at $0.5941, ahead of a central bank decision on Wednesday where economists polled by Reuters expect a 25 basis point interest rate cut.
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