Yen to snap record-losing streak on intervention worries

THE Japanese yen briefly fell to a fresh 2-decade low on Wednesday (Apr 20) after the Bank of Japan stepped into the market again to defend its ultra-low interest-rate policy, drawing a sharp contrast with the United States where bond yields hit new highs.

But the Japanese unit bounced in London trading as increased nervousness around verbal intervention and growing speculation around an impending bilateral meeting between US Treasury Secretary Janet Yellen and her Japanese counterpart prompted traders to trim some short bets.

Still, positioning in the derivatives and currency futures suggest the yen weakness has more room to run.

The BOJ again offered to buy unlimited amounts of Japanese government bonds to check the rise in Japanese 10-year yields, which were butting against its 0.25 per cent tolerance ceiling.

In contrast, Treasury yields marched to 3-year highs while inflation-adjusted bond yields hit positive territory for the first time since March 2020 as hawkish comments by policymakers reinforced expectations of aggressive US interest rate hikes.

The US dollar reached 129.43 yen for the first time since April 2002 in Asian trading before easing to last trade 0.9 per cent lower at 127.82.

"The 130 is a psychological level; if we break it (likely) then momentum will likely drive USDJPY even higher," said Vasileios Gkionakis, EMEA head of FX G10 Strategy at Citibank. "This is a play on monetary policy divergence with the Fed in tightening mode and the BOJ still easing."

The dollar's rally against the yen has come as US Treasury yields pushed higher, with 10-year yields touching 2.981 per cent for the first time since December 2018 in Tokyo trading.

Inflation-adjusted US 10-year yields hit 0 per cent overnight.

"The yen remains the loser of the monetary policy normalisation," Commerzbank strategists said.

Elsewhere, the euro was the other big gainer in London after media reports that some ECB policymakers were forecasting a first rate hike as early as July. The single currency was up as much as 0.6 per cent at US$1.0853. The offshore Chinese currency was the other big loser with the unit declining 0.4 per cent to 6.44 yuan per dollar. REUTERS