Yen sinks to four-decade low as dollar gets yields boost

SINGAPORE/LONDON — The dollar hit a 40-year high against the yen on Wednesday (July 1) as a sharp rise in US Treasury yields boosted the currency ahead of US jobs data that could strengthen the case for a Federal Reserve rate hike this month.

The dollar rose as high as 162.84 yen (S$1.30), well above levels that prompted Japanese authorities to intervene a few weeks ago to support the struggling currency. 

It was last at 162.71 yen, up 0.1 per cent on the day.

"We believe we are close to potential action," said Chidu Narayanan, head of macro strategy for APAC at Wells Fargo, referring to the likelihood of another intervention.

"We are at crucial levels, not necessarily in terms of a target spot level, but levels where the (Ministry of Finance) might need to intervene to retain its credibility."

Traders see Friday's US public holiday as a potential window for Tokyo to buy yen, with thinner liquidity likely to amplify the impact of any intervention.

Japan's top currency diplomat said intervention two months ago to support the yen had been effective, and that some US officials had been "supportive" of the move, Bloomberg News reported on Wednesday.

Joey Chew, head of Asia FX at HSBC, said Japan's Ministry of Finance appeared more tolerant of yen weakness than in the past. 

Factors include broad-based dollar strength against major currencies and falling oil prices, which have eased pressure on the Bank of Japan to curb inflation.

She said the ministry could also be waiting for a downside surprise in Thursday's US jobs report that might weaken the dollar, or could be "baiting speculative yen positioning to build to even more extreme levels so as to enhance the impact of its intervention".

Elsewhere, the dollar gained against a range of currencies, supported by a sharp rise in US Treasury yields.

The euro fell 0.14 per cent to US$1.1404 (S$1.48), while sterling eased 0.2 per cent to US$1.324. Against a basket of currencies, the dollar steadied at 101.31.

A selloff in US Treasuries on Tuesday pushed the benchmark 10-year yield up as much as 9 basis points before it backed off the highs. By Wednesday, yields were rising again, up four bps at 4.465 per cent, outpacing increases in euro zone bond yields.

Analysts said there was no clear catalyst for the move, though month-end positioning may have played a role.

Ahead of Thursday's non-farm payrolls report, data overnight showed US job openings rose to a two-year high in May, though sluggish hiring weighed on consumers' perceptions of the labour market.

Traders now see a 67 per cent chance of a Fed rate hike in September, up from 20.5 per cent a month ago, according to the CME FedWatch tool.

Attention later in the day will turn to Fed Chair Kevin Warsh's appearance at the European Central Bank Forum on Central Banking in Portugal.

"There's probably as much focus on whether he might say anything, but I think he probably won't, given his lack of interest in offering any forward guidance (in June)," Ray Attrill, head of FX strategy at National Australia Bank, said.

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