Dollar Reaches New 24-Year High Against Yen As BOJ Remains Dovish; BOE looms

By Kevin Buckland

TOKYO – The U.S. dollar hit a new 24-year high against the yen after the Bank of Japan stuck to ultra-easy stimulus on Thursday, just hours after the Federal Reserve surprised markets with hawkish interest rate projections.

The greenback had already hit a new 37-year high against the pound before the Bank of England’s policy announcement later in the day, and a two-decade high against the euro.

It also hit new highs against regional currencies, from Australian and New Zealand dollars to the offshore Chinese yuan and Korean won, as well as the Singapore dollar and Thai baht.

The yen embarked on a frantic race the day after the BOJJapan’s decision to keep short-term rates negative and hold the 10-year government bond yield near zero, bolstering market expectations that Japan’s central bank will continue to swim against a global wave of tightening monetary policy, despite a weaker currency.

The dollar jumped as high as 145.405 yen for the first time since August 1998, but then fell sharply back to 143.50, before last trading 0.45% higher than Wednesday at 144.75.

“There could be concerns about intervention, or even a verification of rates by the BOJsaid Tohru Sasaki, head of Japan market research at JP Morgan in Tokyo. “It could also just be the result of market illiquidity.”

“The market will be jittery, there will be some volatility for a while, but eventually, in the medium term, the yen’s weak trend will continue,” Sasaki said. “The 1998 peak was at 147.60, so the market will look to that level.”

Japan’s head of monetary diplomacy later said authorities had not intervened in the market.

The dollar index – which measures the greenback against a basket of six counterparties including the yen, euro and pound – previously hit 111.79 for the first time since mid-2002.

On Wednesday, the Fed released new projections showing rates peaking at 4.6% next year with no cut until 2024. It raised its target interest rate range by an additional 75 basis points (bps) from the overnight at 3.00%-3.25%, as was widely expected.

The dollar was already supported by demand for safe-haven assets after Putin announced he would call up reservists to fight in Ukraine and said Moscow would respond with the might of all its vast arsenal if the West continued what it wanted. called his “nuclear blackmail” on the conflict there.

“Fed projections and headlines on Russia have contributed to dollar strength, which has been particularly acute against the euro and other European currencies,” said Shinichiro Kadota, senior strategist at Barclays in Tokyo. .

“Commodity currencies were also hit hard due to deteriorating risk sentiment.”

The euro weakened to hit a new 20-year low at $0.9807, before falling 0.11% on Wednesday to $0.98265.

The pound fell to a fresh 37-year low at $1.1221 and last changed hands at $1.12425, down 0.24% from the previous session.

The market currently sees an 80% chance of a 75 basis point rate hike by the bepand 20% probably from a half-point increase. [0#BOEWATCH]

The Aussie fell 0.47% to $0.6602 after touching $0.6583, its lowest since mid-2020. Currency liquidity may be thin as Australia observes a public holiday.

Carol N. Valencia