Yen falls to lowest level since 1998 as US yields rise

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HONG KONG, June 13 (Reuters) – The yen fell to its lowest level against the dollar in 24 years on Monday as the spread between Japanese and U.S. benchmark yields widened after data on the US inflation pushed up US Treasury yields.

The dollar hit 135.22 yen, its highest since October 1998, having gained in each of the past seven sessions, as policy divergence between hawkish central banks overseas and the Bank of Japan (BOJ ) becomes increasingly apparent.

Efforts by central banks to raise interest rates to reduce inflation will remain in focus this week. The Federal Reserve and the Bank of England are expected to raise rates at their meetings and it is possible that the Swiss National Bank will do the same.

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However, little change is expected from the BOJ, which said on Monday it would buy 500 billion yen ($3.70 billion) of Japanese government bonds on Tuesday as part of its policy to maintain yields. 10-year benchmark within 0.25 percentage points of its 0% target.

In contrast, the US benchmark 10-year rate touched 3.2% early Monday, after gaining nearly 12 basis points on Friday.

The U.S. two-year yield extended Friday’s gains to hit 3.194%, its highest level since late 2007.

US inflation beat expectations on Friday, leading to bets that the Fed will have to raise rates even more aggressively. Market prices point to about a two-thirds chance of at least 125 basis point increases at the next two Fed meetings – Tuesday and Wednesday this week and into July – according to the CME’s FedWatch tool. Read more

That implies at least a 75 basis point increase, which would be the biggest increase in a single meeting since 1994.

Rising energy prices also hurt Japan’s balance of payments, weighing on the yen.

“For the yen, what could go wrong has gone wrong and is still going wrong,” said Paul Mackel, global head of FX research at HSBC, adding that it was important to watch whether Japanese investors were willing to take on more unhedged currency risk. wallets.

“The big question now is whether the nationals are starting to change their so-called currency hedging ratio, which could lead to more persistent demand for the currency against the Japanese yen. If so, that keeps the currency on a weakening path, or at least stops it strengthening.

Monday’s declines follow a short-lived rally in the yen late Friday when Japan’s government and central bank expressed concern over its recent sharp falls, a rare joint statement seen as the strongest warning yet that the authorities could intervene to support the currency. Read more

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

The euro languished at $1.0490, down 0.23%, and the pound was down 0.23% at $1.2287, taking little support from expectations that the Bank of England will rise. its rates on Thursday, which would be its fifth increase since December. Read more

The Swiss National Bank also meets on Thursday, and a 25 basis point increase is on the cards. Read more

The risk-friendly Aussie dollar lost as much as 0.6% to $0.6998, a three-and-a-half-week low, as fears over the impact of higher rates pushed investors higher. assets perceived as safer.

Similarly, bitcoin, also a so-called risk asset, was under pressure and fell to a new 18-month low of $24,888 as cryptocurrency lending firm Celsius Network said it would suspend withdrawals and transfers between accounts due to “extreme market conditions”. Read more

($1 = 135.0200 yen)

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Reporting by Alun John; Editing by Sam Holmes, Robert Birsel

Our standards: The Thomson Reuters Trust Principles.

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