HONG KONG/TOKYO, March 28 – The Japanese yen slipped to a six-year low on Monday after the Bank of Japan stepped into the market to prevent government bond yields from rising above its key target, while bitcoin jumped to almost its highest this year.
The BOJ offered to buy unlimited amounts of 10-year Japanese government bonds (JGBs) at 0.25% Monday morning after the 10-year JGB yield rose to a six-year high of 0.245%.
The dollar rose to 123.1 yen in morning trade, the strongest since December 2015, and last traded at 122.9, up 0.7% on the day. It is up nearly 6% against the yen over the past 12 sessions.
“The market sees the US-Japan monetary policy divergences as the main driver of the dollar-yen ratio, so contrary to the Fed’s hawkish comments of late, the (BoJ action) gives the impression that the BOJ remains dovish, and that leads to a higher dollar-yen,” said Shinichiro Kadota, senior currency strategist at Barclays in Tokyo.
“I think the risk is still on the upside in the short-term, especially if this policy divergence story remains intact. But the speed has been pretty high and it seems to be overheating a bit, so if we see headlines to the contrary, we might see a correction too,” he added.
The 10-year government bond yield was last at 2.5046% after rising 33 basis points last week.
High commodity prices are also hurting the yen as they help widen Japan’s trade deficit, although at the same time they have given commodity currencies a strong boost.
The Aussie dollar traded at $0.752, staying close to last week’s four-month high, while the Canadian dollar was at 1.249 per dollar, just below Friday’s two-month high.
Australian currency watchers also look to Australia’s budget on Tuesday. Australia’s Treasurer said Sunday the budget would represent a very significant material improvement in the government’s bottom line.
A potential headwind for the Aussie is the COVID-19 situation in China after Shanghai announced on Sunday it would lock down the city to conduct COVID-19 testing.
The dollar climbed as much as 0.24% against the offshore yuan to 6.3986 on Monday morning before rebounding.
The euro was last seen at $1.0956, down 0.25% after falling somewhat in the past few days, still under pressure from the economic fallout from the war in Ukraine.
“Risk balance sheet suggests EUR/USD could test 1.0800 in coming weeks,” said analysts at CBA.
Inflation numbers from major European economies and the euro zone are due from Wednesday, and “the European Central Bank is in a bind with growth headwinds and very high inflation,” CBA said.
Sterling was down 0.19% to $1.3157
The dollar index rose 0.23% to 99.079.
Also potentially boosting the dollar this week is US nonfarm payrolls data released on Friday, although given the market is already positioned for an aggressive pace of rate hikes this year, its impact may be muted, analysts say .
On the cryptocurrency markets, Bitcoin was doing fairly well at $46,900 after jumping as high as $47,766 in early trade, its highest since early January.
Ether, the second largest cryptocurrency in the world, was at $3,320.
Reporting by Alun John in Hong Kong and Kevin Buckland in Tokyo Editing by Shri Navaratnam