Yen hits 7-year low after Bank of Japan moves to curb bond yield rise

The yen fell to a seven-year low on Monday, after the Bank of Japan’s latest move to keep its bond yields quoted underscored the central bank’s commitment to a loose monetary policy while most other countries raise interest rates.

After a streak of large declines against the dollar, the yen dropped to ¥ 125 on Monday afternoon, breaking the level recently reached in late 2015 and causing traders to predict further declines.

The immediate trigger for the yen move below $ 123 earlier that day was the BoJ, which offered to buy an unlimited number of 10-year Japanese government bonds (JGBs) in order to prevent the yield on benchmarks from rising beyond Central Bank yields Policy Objective.

The proposal came after the 10-year yield on the JGB reached 0.245% for the first time since January 2016, reaching the top end of the band implied by the BOJ’s yield curve control policy aimed at keeping the rate “around zero”. Bond yields are moving in the opposite direction to prices.

The proposal underscores the bank’s ionic position even as the US Federal Reserve and many other central banks in the developed market become More hawkish.

Tokyo currency analysts say global customers are asking if the spiral could provoke a Treasury-backed yen intervention for the first time since 1998.

Japan’s chief government secretary Hirokazu Matsuno told a news conference that “exchange rates should be stable, reflecting economic fundamentals.”

But Yujiro Goto, chief currency strategist at Nomura Securities, said the likelihood of actual intervention by the Japanese authorities is quite limited.

Gutto said the yen level had moved significantly above the $ 109 average for the dollar, which was forecast in the BoJ’s latest Tankan survey in December.

He added that if the Japanese authorities do take care of the rapid decline of the yen, one preliminary move may be to declare an emergency meeting between the BoJ, the Ministry of Finance and the Financial Services Agency to discuss the issue. Such a meeting is a traditional signal of concern to the market, although it may not create immediate action.

The yen has been pushed down because of the growing gap between US-Japan’s ultra-low interest rate policy, Japan’s relatively low growth and rising energy and commodity prices that have hit the country dependent on imports.

Naohiko Baba, Japan’s chief economist at Goldman Sachs, noted that the real effective yen is now at its lowest point since 1972, marking a significant decline in the purchasing power of the Japanese currency.

Last Friday, central bank governor Haruhiko Koruda reiterated his determination that the weak yen is still “generally positive” for the Japanese economy, with a drop in yen boosting shares of Japanese exporters.

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Yen hits 7-year low after Bank of Japan moves to curb bond yield rise Source link Yen hits 7-year low after Bank of Japan moves to curb bond yield rise

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