SINGAPORE- The yen fell through the psychological 120 level for the first time since 2016 on Tuesday, after a hawkish speech from Federal Reserve Chair Jerome Powell raised bets on higher US interest rates and widened the policy gap on a dovish Bank of Japan.
The yen fell about 0.4 percent to briefly hit 120.08 per dollar in early Asia trade. It is down about 4 percent this month as leaping US yields have lured flows from Japan.
“Widening policy divergence is continuing to push the yen to more deeply undervalued levels against the US dollar,” MUFG currency analyst Lee Hardman said.
The dollar was broadly stronger elsewhere and pushed the euro down 0.2 percent to $1.0992.
US bonds and interest-rate futures took a further flogging overnight after Powell said policymakers needed to move “expeditiously” and put the possibility of 50-basis point (bp) rate hikes on the table.
Fed funds futures moved to price in an almost 2/3 chance of a 50 bp hike in May and now anticipate the benchmark rate – currently below 0.5 percent – exceeding 2.5 percent in 2023.
Benchmark 10-year yields rose 14 bps and, at 2.0914 percent, the gap on anchored 10-year Japanese yields is the widest in more than 2-1/2 years.
The moves lent broad strength to the dollar elsewhere, as have nerves about the intensifying war in Ukraine which is lifting oil prices back toward early-month highs.
