Yen extends 20-year low on widening US yield gap

[TOKYO] The yen's relentless drop continued on Friday, as it weakened for an 11th straight day against the dollar on bets further divergence between US and Japanese interest rates are inevitable.

The Japanese currency was down just over 0.5 per cent to 126.60 per dollar at 3.30 pm in Tokyo - extending a 20-year low. Benchmark Treasury yields surged in the US overnight, widening the gap with their peers in Japan.

"When liquidity falls due the Easter holiday, accumulated dollar long and yen short positions would be unwound under normal circumstances, but this time, downside risks to dollar-yen appears to be close to zero," said Yoshifumi Takechi, chief analyst at Money Partners in Tokyo.

"Dollar-yen enters a vacuum at the 127 level and there is a high probability markets will next aim for 128." Japan's currency has been in freefall this year as the dovish Bank of Japan keeps local yields anchored to the floor while their Treasury equivalents surge on expectations for aggressive Fed rate hikes.

The yen has also suffered from Japan's position as a commodity importer and is the worst-performing Group-of-10 currency against the dollar with a decline of about 9 per cent this year.

Consensus is building among Tokyo market watchers that the yen can extend losses to the 130 per dollar level in coming months, before it steadies. Investors are betting the interest rate divergence will outweigh efforts from government officials to pare back the currency's slide. BLOOMBERG