BOJ intervenes to stop JGB yields, dollar hits new highs

The yen fell to a six-year low on Monday after the Bank of Japan intervened in the market to stop government bond yields from rising above its key target, while the price of digital currency went to nearly its highest this year.

The BOJ offered to buy unlimited amounts of 10 year Japanese government bonds JGBs at 0.25%, after the 10 year JGB yield went up to a six-year high of 0.245%.

The dollar was its highest since December 2015, reaching 123.1 in morning trade. It has climbed nearly 6% on the yen in the last 12 sessions.

Shinichiro Kadota, senior currency strategist at Barclays in Tokyo, believes that the BOJ remains dovish, and that a higher dollar-yen is a result of the monetary policy divergence between the U.S. and Japan.

I think the risk is still upside in the near term, especially if the monetary policy divergence story stays intact. He added that the speed has been quite fast and it does seem a little overheated, so we could see some correction if we see any contrary headlines.

The 10 year Treasurys yield was last 2.5046%, having jumped 33 basis points last week.

Commodity prices are also hurting the yen as they contribute to a widening of Japan's trade deficit, but at the same time they have provided a strong impetus to commodity currencies.

The Japanese yen has been the major loser as policymakers keep yields near zero and sky-high commodity prices send its import bill ballooning.

Analysts at Barclays cited the negative impact of higher commodity prices on Japan's terms-of-trade and the fact that the dollar-yen has risen given the rapidity of its ascent, but we expect it to remain well-supported at high levels.

The U.S. Federal Reserve firmly believes that the rate hikes this year will lead to markets pricing in an aggressive pace of rate hikes, while the BOJ is dovish, given policy indicators that rising energy costs could hurt the world's third-largest economy.

A senior Japanese government official said on Sunday that monetary policy must remain loose.

The jobless rate is expected to hit a new post-pandemic low of 3.7% on Friday when the U.S. payrolls will increase by 475,000. There are a lot of surveys on global manufacturing and readings on U.S. and EU inflation.

The U.S. data will help shape expectations of whether the tightening of financial conditions will spill into the broader economy, according to analysts at NatWest Markets.