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.
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
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
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
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.
Currency bid prices at 0105 GMT
Description RIC Last US Close Pct Change YTD Pct High Bid Low Bid
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
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
Tokyo Forex market info from BOJ
(Reporting by Tom Westbrook.
Editing by Shri Navaratnam)