The dollar climbed to a new two-decade peak on Wednesday, buoyed by more Federal Reserve officials pushing for sizeable interest rate hikes, while the Bank of Japan stepped into the market to defend its ultra-low rate policy.
The greenback reached the 129.43 yen for the first time since April 2002 before trading 0.3% higher at 129.295.
If global supply chain disruptions persist, policymakers will need to take more aggressive action to bring down inflation, according to Minneapolis Fed President Neel Kashkari, among other dovish Federal Open Market Committee members.
Chicago Fed President Charles Evans, who is not a voter on the FOMC, said he is comfortable with a round of rate hikes this year that include two 50 basis-point increases, marking an about face from just a month ago.
The 10 year yields touched 2.981% for the first time since December 2018 as the US Treasury yields went higher, and continued their climb in Tokyo trading.
In contrast to the Fed, the BOJ offered to buy unlimited amounts of Japanese government bonds on Wednesday in order to rein in the rise in Japanese 10 year yields, which were butting against its 0.25% tolerance ceiling.
The yen's rapid descent is not unjustified, even though it raises risks for currency intervention, according to policy divergence.
The damage to the economy from a weakening currency is greater than the benefits from it, according to Japanese Finance Minister Shunichi Suzuki.
Amid the rising in U.S. Treasury yields, actions clearly speak louder than words, with Suzuki's comments continuing to go unheeded, Ray Attrill, head of foreign-exchange strategy at National Australia Bank, wrote in a client note.
Incoming Fed speak hasn't detract from the ongoing bond sell-off. The dollar index, which measures the currency against six major peers, dropped slightly higher to 101.01, staying above the 101 line and above Tuesday's high of 101.03, a level not seen since March 2020.
The greenback was for the first time since June 2020, before changing hands with 0.95305 franc 0.06% stronger than 0.95275.
The euro traded flat at $1.0788, which was not far from the low of $1.0758 last week, the weakest in two years.
On Wednesday, China surprisingly kept its benchmark lending rates for corporates and households steady, going against the global trend of monetary tightening as major economies battle inflation.