Japan yen falls to 6-year low against dollar

The Japanese yen fell to a six-year low against the dollar on Monday, and headed for its largest monthly loss since 2016 after the Bank of Japan moved to contain rising bond yields, even as U.S. Treasury yields soared to new multi-year highs.

The Bank of Japan has pledged to keep policy loose, unlike most other major central banks in rate hike mode, especially the U.S Federal Reserve, which is expected to deliver a half-point interest rate rise in May.

Treasury yields rose further on Monday, with 10 year yields above 2.5% at a three-year high, boosting the dollar's index to a two-week high.

The BOJ offered to buy an unlimited amount of debt with maturities of more than five years and up to 10 years in order to prevent the global yield from spilling into Japanese bond markets. It pledged to do this three days in a row.

The dollar was 1.6% higher against the yen by 8: 25 a.m. GMT, the highest since August 2015, when it was at 124 yen. The yen losses in March have exceeded 7%.

The Japanese currency has lost ground against the euro, which is underpinned by expectations that the European Central Bank will join the rate hike club this year. The euro rose by 0.8% to 135.6 yen, a four-year high.

The yen has been hit by a lot of factors. According to Jan von Gerich, chief analyst at Nordea, virtually all central banks have been changing course and talking more hawkish but not the BOJ.

Even in this inflationary environment, the BOJ has not moved with other central banks, and that has weighed on the yen. The dollar was up 0.4% against a basket of currencies, with 130 bps of interest rate rises priced until the July meeting. Money markets see the ECB kick off rate rises in July, but its monetary tightening will lag the Fed, keeping the euro under pressure against the dollar.

The EU's inflation could be affected by inflation figures from major European economies this week, with the bloc's harmonized HICP inflation seen as edging up to 6.5% in March.

The support from elevated oil and metals prices continued to be enjoyed by commodity currencies. The Australian dollar went up to $0.7527 to hold near last week's four month high, helped by rising bond yields - three-year yields which were at the highest since 2014.

One possible headwind for the Aussie is the COVID 19 situation in China, after Shanghai said on Sunday it would lock down the city to carry out COVID 19 testing.

The dollar climbed to a two-week high of 6.3983 on the offshore yuan before paring gains.

The price of the digital currency was around $46,944 after touching $47,766, its highest since January.