Yen falls as BOJ steps in to keep bond yields low

FILE PHOTO: Illustrative photo of a Japanese yen note
FILE PHOTO: A Japanese yen note is seen in this illustrative photo taken on June 1, 2017. REUTERS/Thomas White/Illustration

March 28, 2022

By Alun John and Kevin Buckland

HONG KONG/TOKYO (Reuters) – The Japanese yen slipped nearly 1% to a six-year low on Monday after the Bank of Japan intervened to prevent government bond yields from rising above its key target, while rising U.S. yields shrugged off the Dollar also pushed higher against other currencies.

The BOJ, which has repeatedly committed itself to loose monetary policy, made two offers on Monday to buy an unlimited amount of government bonds with maturities of more than five years and up to 10 years. The central bank wants to prevent rising global interest rates from driving up Japanese yields.

The dollar climbed about 0.95% to 123.25 yen, its highest since December 2015. It is up more than 7% in March so far, its biggest monthly gain in over five years.

“The market sees US-Japan monetary policy divergence as the key driver for dollar-yen, so contrary to the Fed’s hawkish statements of late, the (BoJ action) gives the impression that the BOJ remains dovish, and that leading 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 near term, especially if this history of policy divergence remains intact. But the speed was quite high and it seems a little overheated. So if we see conflicting headlines, we might also see some correction,” he added.

The 10-year Treasury yield last stood at 2.5567%, its highest since May 2019, and rose 6.5 basis points on the day as traders brace for a series of aggressive Federal Reserve rate hikes.

The two-year return was 2.412%, the highest since April 2019, with those higher rates supporting the dollar. The greenback index rose 0.38% to 99.194 against a basket of key peers.

The euro fell 0.27% to $1.0950 and the pound sterling lost 0.36% to $1.3150.

“We expect the euro to remain heavy this week. Risk balance suggests that EUR/USD could test 1.0800 in the coming weeks,” CBA analysts said in a note.

Inflation figures from the major European economies and the euro zone are due out on Wednesday, which could also affect the direction of the euro.

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 .

However, the Australian dollar bucked the trend, rallying as high as $0.7513 to hold near last week’s four-month high, helped on the day by rising Australian bond yields as well as the longer-term implications of higher commodity prices.

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 hit a two-week high of 6.3986 against the offshore yuan on Monday morning before rallying.

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) Yen falls as BOJ steps in to keep bond yields low


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