Yen Crashes Out as BoJ Refuses to Shift Dovish Monetary Stance

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The US dollar traded on an upbeat tone against the Japanese yen on Tuesday, as investors placed new bullish bets, following the Fed rate hike news. The outflow of investors from the yen sent the USD/JPY pair soaring above the 120 level, as the Bank of Japan (BoJ) remains isolated with its dovish policy outlook.

The yen hit a six-year low against the dollar, as the forex pair peaked at 121.03 in the London session on Tuesday. The yen has now lost over 4% against the greenback this month alone, as blistering US yields and a worsening trade balance caused the third-largest economy to bleed cash.

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Yen also fell against the euro, with the EUR/JPY pair tapping a six-week high at 133.01. Likewise, the single currency slumped to a four-year low against the Aussie with the AUD/JPY peaking at 89.80, and to a six and a half year low against its safe-haven counterpart CHF.

That said, the Governor of the BOJ Haruhiko Kuroda asserted earlier today that Japan must maintain its dovish monetary policy to safeguard the economy from getting hurt by inflation, the polar opposite of the hawkish overnight comments from US Federal Reserve Chair Jerome Powell.

An analyst at UOB in Singapore stated in a quarterly outlook note, which readjusted its year-end USD/JPY forecast from 119 to 121, that “rising energy prices and higher US Treasury yields are both bad news for the Japanese yen.”

The Fed chair excited the US yields market following comments of a possible 50 basis points (bps) rate hike in the coming weeks. Fed funds futures adjusted significantly to accommodate a ⅔ chance of 0.50% rate hike in May. The Fed funds futures also anticipates the benchmark rate, which currently rests at 0.5%, to surpass 2.5% in 2023.

That said, the two-year, five-year, 10-year, and 30-year Treasury yields all hit their highest points since 2019 today, increasing the gap in unmoving Japanese yields while bolstering the greenback.