Yen on the ropes as BOJ defends yield target

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SINGAPORE — The yen fought for a footing

on Tuesday, following its worst session in 16 months, as the

Bank of Japan pins down bond yields at a time when they are

rising sharply in the rest of the world.

The Japanese currency fell as much as 2.4% to

125.10 to the dollar overnight, its lowest since August 2015,

before recovering to 124.24 in volatile morning trade in Tokyo.

The US dollar was broadly steady elsewhere, keeping the

euro at $1.0988 and capping a recent rally in the

Australian dollar to hold it at $0.7483.

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Japan’s central bank bought a little more than $500 million

in bonds on Monday and has vowed three more days of unlimited

purchases to defend its 10-year yield target of 0.25%.

The move, a demonstration of resolve to keep Japan’s

monetary policy ultra easy, underscores the stark contrast with

an ever-more-hawkish sounding US Federal Reserve and has

tipped the already-sliding yen off a cliff.

It is down nearly 7% this month and almost 10% on a

Resurgent Aussie. But with Japanese government bond

yields (JGBs) barely retreating it is clear that

some investors doubt the longevity of Japan’s policy.

“Anyone who watched the RBA ‘cap’ blow is probably excitedly

(and logically) short JGBs right now hoping for a similar move

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in Japan rates,” said Brent Donnelly, president at analytics

firm Spectra Markets, referring to the Reserve Bank of

Australia’s abandonment of its yield target in November.

Minutes from the Bank of Japan’s March meeting published on

Tuesday showed policymakers stressing the need to keep monetary

policy ultra-loose, even as some of them saw signs of growing

inflationary pressure.

Yet economists see building pressure for a shift if

persistent yen weakness exacerbates inflation by raising import

costs, particularly for energy, and reckon that 125, roughly

where dollar/yen peaked in 2015, is a key level.

“Japanese yen depreciation is a big problem for the Japanese

economy, because the economy – especially households – is facing

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rising inflation and yen depreciation could accelerate that,”

said Kentaro Koyama, chief economist at Deutsche Bank in Tokyo.

“If the dollar/yen rate exceeded 125 I’d expect some more

severe verbal intervention.”

Japanese Finance Minister Shunichi Suzuki said on Tuesday

that Japan will carefully watch foreign exchange market movement

to avoid “bad yen weakening.”

Among other majors the New Zealand dollar was a

fraction weaker at $0.6889 and sterling was under

pressure at $1.3081.

European consumer confidence data and US job openings

figures are due later in the day.

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Currency bid prices at 0105 GMT

Description RIC Last US Close Pct Change YTD Pct High Bid Low Bid

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Previous Change

Session

Euro/Dollar $1.0975 $1.0988 -0.10% -3.45% +1.0998 +1.0969

Dollar/Yen 123.8750 123.8650 +0.20% +7.91% +124.3000 +123.4000

Euro/Yen

Dollar/Swiss 0.9342 0.9345 -0.02% +2.43% +0.9356 +0.9334

Sterling/Dollar 1.3083 1.3095 -0.10% -3.27% +1.3106 +1.3080

Dollar/Canadian 1.2522 1.2517 +0.04% -0.96% +1.2530 +1.2515

Aussie/Dollar 0.7479 0.7492 -0.16% +2.90% +0.7507 +0.7475

NZ 0.6891 0.6897 -0.07% +0.69% +0.6908 +0.6889

Dollar/Dollar

All spots

Tokyo spots

Europe spots

Volatilities

Tokyo Forex market info from BOJ

(Reporting by Tom Westbrook.

Editing by Shri Navaratnam)