The yen's historic run of losses showed no signs of easing Wednesday as it weakened to 130 per dollar after an overnight rise in Treasury yields.
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The currency dropped for a 14th consecutive session -- down 0.3% to 129.35 -- as traders bet on further divergence between the U.S. and Japanese interest rates. A consensus in Tokyo that it would reach 130 against the dollar in the coming months looks set to happen even quicker and investors are ready for a chance that policy makers will intervene to defend the beleaguered currency.
Shinsuke Kajita, chief strategist at Resona Holdings Inc. in Tokyo said that the dollar-yen's upward momentum appears unstoppable right now while the U.S. yields keep rising. The current sentiment is hard to see the pair not touching 130. The benchmark U.S. 10 year yield was just a few basis points shy of 3% on Wednesday, while the same maturity yield in Japan was at 0.25% a level that the central bank has been defending.
There is a rising possibility that the Ministry of Finance will intervene via the Bank of Japan in an effort to curb the yen rout, said Joseph Capurso, Commonwealth Bank of Australia Ltd. strategist. He added that we don't know what level of dollar-yen is the line in the sand.
The yen has slumped to a 20 year low this month as the dovish Bank of Japan keeps its local yields anchored to the floor while their U.S. equivalents surged on expectations for aggressive Fed hikes. Japan's position as an energy importer at a time of rising oil prices has also weighed down its position as an energy importer.
On Tuesday, Japan's Finance Minister Shunichi Suzuki stepped up the verbal defense of the currency. He is attending the G-20 meeting of finance ministers and central bank governors in Washington this week, where U.S. Treasury Secretary Janet Yellen is also present.
While BOJ Governor Haruhiko Kuroda took a firmer position on the yen moves on Monday, his insistence that the central bank will keep the stimulus on tap is continuing to fuel currency moves and complicating the message of Japan's senior policy makers.
Resona s Kajita said that there may be a slowing of the pace of yen weakness as a result of the wariness over comments from officials gathering at the G- 20 meeting.
Yen s Twenty-Year Low Just the Start for Tokyo s Traders
John Hardy, head of FX strategy at Saxo Bank, wrote in a note that the pressure cooker is set to continue for the yen. He wrote that there won't be a let up until Japan comes in with actual currency intervention or the BOJ loosens its commitment to capping 10 year yields.
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