HONG KONG: The dollar climbed to a 24 year high on the yen on Monday after Japan's ruling conservative coalition showed no change to loose monetary policies and global growth fears helped the safe-haven US currency more broadly.
The dollar climbed to as high as 137.28 yen in morning trading, its highest since late 1998. It was up 0.6 per cent at 136.93, up 0.6 per cent at the end of the day.
The euro, which dropped 0.34 per cent to US $1.0151, went back to a 20 year intraday low on Friday, leaving the dollar index up 0.36 per cent at 107.3.
Rodrigo Catril, currency strategist at National Australia Bank, said that the dollar is strengthening but the dollar-yen is leading the move.
He said investors' move away from riskier assets had been supporting the dollar as a whole, while the yen was particularly pressured by the combination of high US benchmark yields and Sunday's election result indicating that there would be no change to Japan's expansionary economic policy.
The Bank of Japan's policy of keeping Japanese benchmark yields pinned down to support the economy, coupled with high US interest rates, has resulted in a weakness in the yen's recent weakness, and has caused anger from consumers.
The coalition led by Prime Minister Fumio Kishida's Liberal Democratic Party LDP increased its upper house seats in Sunday's election, and Catril said this could reduce some pressure to change course.
The US 10 year yield was last at 3.087 per cent, holding onto its gains from last week.
Away from Japan, fears about the global growth outlook, particularly as central banks try to curb runaway inflation, were pushing flows to safe havens.
The dollar could be expensive until the risks around elevated global inflation, European energy security and China's growth outlook have been resolved, according to analysts at Barclays.
The US CPI will be an important piece of the puzzle as the Fed decides between 50 basis points and 75 basis points ahead of the July meeting. The US Federal Reserve would have to raise rates more aggressively to combat inflation as a result of US CPI data due Wednesday, and markets would likely interpret a high reading as a sign that the US Federal ReserveFederal Reserve would need to raise rates even more aggressively.
Rate hikes are expected to be made this week from the Reserve Bank of New Zealand and the Bank of Canada with inflation rampant across much of the world.
The euro was struggling against more than just the dollar due to energy concerns, and on Monday was trading at a 0.85 British pence and 139 yen, just above last Friday's levels when it hit its lowest since May against both currencies.
The biggest single pipeline carrying Russian gas to Germany starts regular maintenance on Monday, a concern for the European economy. Flows are expected to stop for 10 days, but governments, markets and companies fear the shutdown will be extended due to the war in Ukraine.
The Chinese second quarter GDP data is expected to be released on Friday, with investors watching for signs that the economy has been hit by COVID 19 lockdowns.
Britain will publish its second quarter GDP data on Wednesday, but attention is focused more on the choice of the ruling Conservative party's next leader and prime minister.
The pound was down by 0.38 per cent against the stronger dollar at US $1.1986 on Monday morning, after finishing a volatile time last week not far from where it started, while the risk-friendly Australian dollar fell 0.6 per cent to US $0.6814.