The yen fell on Tuesday as U.S. Treasury rates soared to near two-year highs. The Bank of Japan reaffirmed its commitment to maintaining the ultra-loose monetary policy. Hence, higher yields had little impact on the greenback’s value versus other currencies. Following the result of the BOJ meeting, the dollar rose 0.37 percent against the yen to as high as 115.05 per dollar after trading as low as 114.5 earlier in the day ahead of the meeting. It subsequently gave up its gains, dropping to 114.84.
“Global reflation trade and increasing U.S. rates hint to yen depreciation pressures,” said Carlos Casanova, a senior Asia economist at UBP. Two-year rates in the United States exceeded the 1% threshold for the first time since February 2020. They were last at 1.036 percent, up roughly seven basis points.
As markets priced in a raise in March and three more by the end of the year, benchmark 10-year rates climbed more than six basis points to 1.8550 percent, their highest since January 2020. “Moreover, the Bank of Japan should retain monetary policy ultra-accommodative for longer, with any inflation uptick in 2022 expected to be mild, around 1.0 percent,” says the report.
Outlook on BOJ
At its policy meeting on Tuesday, the BOJ raised its inflation estimates. However, it noted that inflation should stay substantially below its 2% objective in the coming years, reiterating its commitment to maintaining the ultra-loose monetary policy. On the other hand, the dollar gained less headway against other major currencies.
The euro was down 0.09 percent at $1.1398. The pound was unchanged at $1.3635, putting the dollar index, which measures the currency against six rivals, at 95.325, well in the center of its current range and up only 0.07 percent on the day. “Either the dollar is a screaming buy compared to yields, or there is a lot of dollars supporting news locked in,” says Ray Attrill, National Australia Bank’s head of F.X. strategy.
The Australian dollar fell 0.23 percent to $0.7192 after statistics revealed that an increase in coronavirus infections had harmed consumer confidence in Australia. Bitcoin was trading at $42,000, falling from a record high of $69,000 in November.