Yen falls as Bank of Japan intervenes to keep bond yields steady

HONG KONG / TOKYO (Reuters) – The Japanese yen fell nearly 1 percent to a six-year low on Monday after the Bank of Japan intervened to stop government bond yields from rising above its main target, while rising US yields pushed the dollar higher against other currencies as well.

The Bank of Japan, which has repeatedly said it is committed to keeping monetary policy loose, on Monday made two offers to buy an unlimited amount of government bonds with maturities over five years and up to 10 years. The central bank aims to prevent rising global interest rates from boosting Japanese yields.

The dollar rose nearly 0.95% to 123.25 yen, its highest level since December 2015. It has risen more than 7% so far in March, its biggest monthly gain in more than five years.

“The market sees the monetary policy divergence between the US and Japan as the main driver of the dollar-yen, so in contrast to the Fed’s hawkish comments recently, (the Bank of Japan’s action) gives the impression that the BoJ remains dovish, and this leads to a pessimistic outlook,” said Shinichiro Kadota, senior currency strategist. At Barclays in Tokyo Dollar-Yen Top.

“I think the risk is still to the upside in the near term, especially if the monetary policy divergence story stays the same. But the pace has been very fast and seems to be a bit frantic, so if we see any headwinds then we could also see some correction.”

The 10-year Treasury yield was another 2.5567%, the highest since May 2019, and rose 6.5 basis points on the day, as traders braced for a series of aggressive increases from the US Federal Reserve.

The two-year yield was 2.412%, the highest since April 2019, with these higher dollar rates supported. The dollar index advanced against a basket of major competitors by 0.38% to 99.194.

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

“We expect the euro to remain heavy this week. The balance of risks indicates that the 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 Eurozone are due to be released from Wednesday, which could also influence the direction of the Euro.

The dollar is also likely to be led this week by US non-farm payroll data on Friday, although the market is already set for a strong pace of rate hikes this year, the impact could be muted, analysts say.

However, the Australian dollar bucked the trend, rising slightly to $0.7513 to hold near a four-month high last week, helped in the day by higher Australian bond yields, as well as the long-term impact of higher commodity prices.

Australian currency watchers are also looking ahead to Australia’s budget on Tuesday. On Sunday, the Australian Treasurer said the budget would represent a very significant substantive improvement in the government’s net profit.

One potential headwind for Australia is the COVID-19 situation in China, after Shanghai said on Sunday it would lock down the city for COVID-19 testing.

The dollar rose to a two-week high of 6.3986 yuan offshore Monday morning, before paring gains.

In the cryptocurrency markets, bitcoin was stable near $46,900 after jumping to $47,766 in early trading, its highest level since early January.

The price of Ether, the second largest cryptocurrency in the world, reached $3,320.

Additional reporting by Elon John in Hong Kong and Kevin Buckland in Tokyo; Edited by Shree Navaratnam

Our criteria: Thomson Reuters Trust Principles.