The U.S. dollar has reached its highest level against the Japanese yen in a year, fueled by rising Treasury yields that have bolstered the greenback’s position against most major currencies.
Dollar Strengthens as Yields Rise
On Monday, the dollar reached a peak of 150.32 yen, according to Tullett Prebon data. This represents the highest intraday level for the currency pair since October 21, 2022, when the dollar climbed to 151.95 yen, its strongest point since the early 1990s.
Concerns Over Depreciation
Japanese Prime Minister Fumio Kishida expressed concerns about the rapid depreciation of the yen during a parliamentary session last week. He pledged collaboration with the Bank of Japan to take action if necessary.
While higher Treasury yields have contributed to the strength of the U.S. dollar, the Bank of Japan has maintained a firm grip on Japanese government bond yields. This control persists even after adjustments made last year to allow for more free trading of bonds.
There is speculation on Wall Street that the Bank of Japan may abandon or significantly modify its policy of controlling bond yields. There are also indications that it may reconsider its policy of maintaining short-term yields in negative territory. These changes could potentially occur at the upcoming policy meeting next week.
Divergence in Central Bank Policies
Unlike many other central banks that have raised interest rates over the past two years, the Bank of Japan has bucked the trend. This divergence has contributed to the weakness of the yen, as the Japanese currency offers lower returns compared to the U.S. dollar and Treasury yields. On Wednesday, Treasury yields were near their highest levels in 16 years.
The U.S. dollar’s climb against the Japanese yen highlights the influence of rising Treasury yields in the currency market. However, potential changes in the Bank of Japan’s policies could have an impact on the yen’s future trajectory.