Yen sinks to four-decade low as dollar gets yields boost

SINGAPORE: The dollar climbed after a sharp rise in Treasury yields and pushed the yen to a 40-year trough on Wednesday, as traders braced for a crucial U.S. jobs report and ramped up bets on an imminent Federal Reserve rate hike.

The dollar rose to a fresh top of 162.84 yen in the Asian session, well above levels that prompted Japanese authorities to intervene a few months ago to shore up the ailing currency. It was last at 162.67 yen.

“We believe we are close to potential action,” said Chidu Narayanan, head of macro strategy for APAC at Wells Fargo, referring to the likelihood of another intervention.

“We are at crucial levels, not necessarily in terms of a target spot level, but levels where the (Ministry of Finance) might need to intervene to retain its credibility.”

Traders see the upcoming U.S. public holiday on Friday as a potential window for Tokyo to buy yen, as thinner liquidity conditions could magnify the impact of any intervention.

In the broader market, the dollar was on the front foot, as it rode an overnight jump in U.S. Treasury yields. The euro fell 0.11% to $1.1408, while sterling eased 0.2% to $1.32369. Against a basket of currencies, the dollar steadied at 101.34.

The rise in the greenback came on the heels of a 9-basis-point intraday rise in the 10-year U.S. Treasury yield on Tuesday, before it ended the session some 4.8 bps higher.

The 2-year yield was up 3 bps in the previous session and last stood at 4.1785%.

Analysts said there was no clear catalyst behind the moves, though they could have partially been driven by some month-end positioning.

Ahead of Thursday’s U.S. non-farm payrolls report, data overnight showed U.S. job openings edged up to a two-year high in May, but subdued hiring soured consumers’ perceptions of the labour market.

“All the evidence and the Fed’s view itself is that the labour market is proving to be resilient, and therefore in terms of the Fed’s dual mandate, the labour market is clearly not giving any signal that they should be thinking about cutting rates,” said Ray Attrill, head of FX strategy at National Australia Bank (NAB).

Traders are now pricing in a 67% chance that the Fed could hike rates in September, up from a 20.5% probability a month ago, according to the CME FedWatch tool.

“The runway is certainly getting shorter for those advocating for no policy change when the Fed’s stance is viewed to be hawkish, inflation is well above target and U.S. data is beating expectations,” said Prashant Newnaha, senior rates strategist at TD Securities.

Focus for the day ahead, meanwhile, falls on Fed Chair Kevin Warsh’s appearance at the European Central Bank Forum on Central Banking in Portugal.

“There’s probably as much focus on whether he might say anything, but I think he probably won’t, given his lack of interest in offering any forward guidance (in June),” said NAB’s Attrill.

The Australian dollar fell 0.18% to $0.6907, while the New Zealand dollar was down 0.04% at $0.5674.