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13 Jun 2022

Yen plummets at its Lowest level since 1998 as U.S. benchmark Yields

The Index Today

In 24 years on Monday, the yen plummets to its lowest level against the dollar, as the gap between Japanese and U.S. benchmark yields widened further after red hot U.S. inflation data drove U.S. Treasury yields higher.

The dollar rises as high as 135.22 yen, its highest since October 1998, having gained for each of the past seven sessions, as the policy divergence between hawkish central banks overseas and the dovish Bank of Japan (BOJ) becomes ever more apparent, Reuters reported.

Bank of Japan (BOJ) also said on Monday that it would buy 500 billion yen ($3.70 billion) of Japanese government bonds on Tuesday as part of its policy to keep benchmark 10-year yields within 0.25 percentage points of its 0% target.

In contrast, the benchmark U.S. 10-year yield touched 3.2% early on Monday, having gained nearly 12 basis points on Friday. The U.S. two-year yield extended Friday's gains to touch 3.194%, its highest since late 2007.

U.S. inflation beat expectations on Friday driving bets that the Fed will have to raise rates even more aggressively. Market pricing indicates roughly a two-thirds chance of at least 125 basis points of increases across the Fed's next two meetings - on Tuesday and Wednesday this week and in July - according to the CME's FedWatch tool.

Paul Mackel global head of FX research at HSBC, adding it was important to watch whether Japanese investors were prepared to take more unhedged currency risk in their portfolios said, "For the yen, what could go wrong did go wrong, and continues to go wrong.”

Expectations of a more hawkish Fed are pushing up the dollar against more than just the yen. The dollar index, which tracks the greenback against six peers, was 0.3% higher at 104.58, its highest in four weeks.

©Photo: Wall Street Journal

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