Yen crashes; BOJ moves against rising bond yields

London

THE Japanese yen crashed to a 6-year low versus the dollar on Monday (Mar 28), and headed for its biggest daily loss since March 2020 after the Bank of Japan (BOJ) moved to contain rising bond yields, even as US Treasury yields soared to new multi-year highs.

The BOJ's dovish stance contrasts with that of most other central banks, especially the US Federal Reserve which is expected to deliver a half-point interest rate rise in May, having kicked off its tightening cycle this month.

Treasury 10-year yields vaulted above 2.5 per cent to 3-year highs, lifting the dollar to 2-week peaks.

To stop those yield rises from spilling into Japanese bond markets, the BOJ offered to buy an unlimited amount of debt with maturities of more than 5 years and up to 10 years.

While that did not stop 10-year yields hitting the upper limit of the BOJ's policy band, it sent the yen sprawling.

By 930 GMT, the dollar was up 2 per cent against the yen at 124.65 yen by 0825 GMT, the highest since August 2015 and the biggest 1-day rise since March 2020. Yen losses in March surpass 7 per cent and the currency is set for its biggest monthly and quarterly falls since 2016.

The Japanese currency also lost ground against the euro, which is increasingly underpinned by expectations the European Central Bank will join the rate hike club this year. The euro gained 1.7 per cent at 136.9 yen, a 4-year high.

Money markets now price 60 basis points (bps) of rate hikes this year, allowing the euro to claw back earlier losses versus the greenback to stand flat on the day at US$1.098.

Its fortunes this week could be determined by inflation figures from major European economies, with the bloc's harmonised HICP inflation seen edging up to 6.5 per cent in March.

However, with the Fed tipped by markets to raise rates by 130 bps by July, the dollar index strengthened 0.3 per cent.

On commodity currencies, the Australian dollar inched to US$0.7527, holding near recent 4-month high, helped also by short-dated bond yields at the highest since 2014.

The dollar touched a 2-week high of 6.3983 on the offshore yuan, before paring gains. REUTERS