Japanese yen hits 24-year low

SINGAPORE/TOKYO – The dollar rose broadly on Thursday (Sept 1), particularly against the yen, as investors braced for higher US interest rates while expecting anchored Japanese rates to go nowhere anytime soon.

The greenback hit a 24-year high of 139.69 against the yen in early Asia trade, a gain of about 0.5 per cent on the previous day's close. It was last up 0.42 per cent at 139.55.

"The main driver remains rate differentials between Japan and the US, and even today's price action just follows the overnight move higher in US rates.

"And we think the path ahead is going to depend on how US rates behave," said Sosuke Nakamura, a strategist at JPMorgan in Tokyo.

Expectations for a 75-basis-point US rate hike at next month's Federal Reserve meeting are rising on the back of solid economic data, with Fed funds futures last pointing to a 75 per cent chance of such an increase.

"So long as expectations for the peak in the Fed funds rate keep ratcheting higher while the Bank of Japan remains on hold, dollar/yen will be a buy on dips. Anywhere in the low 140s now looks plausible," said Sean Callow, a currency strategist at Westpac in Sydney.

However, a senior finance ministry official said on Thursday that Japan was watching currency moves with a "high sense of urgency". 

The surging dollar also pinned other major currencies down in Asia trade, with sterling falling about 0.4 per cent to a new two to half-year low of $1.1570 (S$1.62) as clouds gathered over the British economy.

The pound lost 4.6 per cent in August, its steepest monthly decline since Oct 2016.

The risk-sensitive Australian and New Zealand dollars likewise hit their lowest levels since July, with the Aussie down 0.7 per cent to $0.67925, while the kiwi fell 0.7 per cent to $0.6077.

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The euro slipped 0.4 per cent but was clinging on above parity at $1.0014, as red-hot inflation stoked interest rate expectations in Europe.

Euro zone inflation rose to a record high at 9.1 per cent in August, data released on Wednesday showed, solidifying the case for further big European Central Bank rate hikes to tame it. 

Markets have priced in about a 40 per cent chance the ECB will increase rates by 75 basis points next week, even as risks of a painful recession rise along with gas prices.

"The high inflation and (the) gas supply are still major issues in both the euro zone and the UK, and I think it's going to keep downward pressure on both those currencies," said Joseph Capurso, head of international economics at Commonwealth Bank of Australia.

"I can see the euro going back below parity again quite soon."

The US dollar index, which measures the greenback against a basket of currencies, was up 0.2 per cent at 109.08, not far off its two-decade high of 109.48 hit on Monday.

"The US dollar has a bit more upside, partly because we think the market is underestimating how high the Federal Reserve could take the funds rate," said CBA's Capurso.

Yields on US Treasuries rose accordingly. The two-year Treasury yield hit a peak of 3.516 per cent, the highest since late 2007, while expectations for the peak in the Fed funds rate crept closer to four per cent.