US Dollar Taps Two-Decade Peak Against Yen as BoJ Maintains Ultra-Dovish Stance

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The US dollar index (DXY), which tracks the dollar’s performance against other benchmark currencies, soared to a two-week high in the Asian session on Tuesday.

The dollar rode on the back of rising US Treasury yields, which forced the yen to a two-decade low of 133 against the dollar. This level had been marked as “intervention territory,” shortly after BoJ Governor Haruhiko Kuroda reaffirmed his resolute commitment to “powerful” monetary stimulus.

US Dollar Boosted by Gains in US Treasury Yields

The Japanese yen is particularly sensitive to interest rate differentials between Japanese debt and US bonds. Benchmark 10-year Treasury yields spiked as high as 3.064% in the Japanese session today for the first time in nearly four weeks. Also, the US 10Y vs. JP 10Y maintained a downward momentum and currently holds around 272 basis points.

Commenting on the predicaments facing the yen, Chief Analyst at Danske Bank, Kjær Lomholt, noted: “With 10-year US treasury yields above 3% and oil at $125 per barrel, the pressure has increased on the yen.”

Lomholt also believes that it remains highly unlikely to see the Bank of Japan taking action to alleviate the pressure on the single currency. He asserted: “We expect no relief from the Bank of Japan, which continues to view a weak JPY as mainly positive for the economy.”

The DXY extended the gains recorded yesterday, rallying by as much as 39 basis points this morning. The rally pushed the greenback to its highest point since May 23.

In other news, the euro slipped lower against the dollar to 1.0677 ahead of the European Central Bank (ECB)’s policy meeting on June 9. At the meeting, policymakers are expected to announce a pivot from dovish ECB policy to a more hawkish approach, opening the ground for the first positive rate change in 11 years.