Yen falls to 20-year low as dollar outlook brightens

London

THE Japanese yen weakened past the 126 yen per dollar mark on Wednesday (Apr 13) for the first time since 2002, while the euro was pinned at a 1-month low as investors bought the US currency after hawkish comments by Federal Reserve officials. The prospect of fast and aggressive US interest rate hikes and growing market expectations that the Bank of Japan will keep rates ultra-low in the near term have fuelled the Japanese currency's declines against the dollar.

Bank of Japan governor Haruhiko Kuroda on Wednesday warned that the recent rise in inflation driven by higher import costs could hurt the economy, stressing the central bank's resolve to keep monetary policy ultra loose.

"The Fed's hawkishness against the BOJ's extreme dovishness will remain a clear headwind for the yen over the foreseeable future - and it is not unreasonable to expect yen loses to continue to the 130 mark," Scotiabank strategists said.

The yen led losers against the dollar with the Japanese unit weakening 0.8 per cent to cross the 126 yen to the dollar level. It was trading 0.5 per cent weaker at 126 yen in London.

Though US monthly underlying inflation pressures showed some signs of moderation in Tuesday's data, traders ramped up bets that the Fed will accelerate its monetary tightening measures this year. Against a basket of 6 major currencies, the dollar edged 0.1 per cent up to 100.52, its highest since April 2020. It has gained nearly 3 per cent so far this month and is on track for its biggest monthly rise in 9 months.

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Elsewhere, the kiwi was buffeted after the Reserve Bank of New Zealand announced its sharpest rate hike in 2 decades to curb inflation. While the 50 basis point rise was larger than many economists had expected, it was within traders' expectations, and policymakers tempered the move by not lifting their projected peak for rates.

The euro fell to US$1.0821 overnight, its lowest level against the dollar in over a month and hovered at US$1.0837 in London trading. The Australian dollar and the offshore Chinese yuan weakened slightly after a surprise plunge in China's imports added to investor worries about weakening demand. REUTERS