The dollar on Monday climbed to a 24-year high on the Japanese yen after Tokyo’s ruling conservative coalition’s strong poll performance signalled no change to loose monetary policies, amid global growth fears.
The dollar climbed to as high as 137.28 yen in morning trading, its highest since late 1998 before lightly paring those gains and was last up 0.6% at 136.93.
The dollar was also firm on the euro, which dropped 0.38% to $1.0144 heading back towards a 20-year intraday low hit Friday, leaving the dollar index up 0.4% at 107.3.
“The dollar is strengthening across the board but dollar-yen is leading the move,” Rodrigo Catril, a currency strategist at National Australia Bank, said.
He said investors’ move away from riskier assets had been supporting the dollar overall, while in Japan, Sunday’s election result indicating there would no change to the country’s expansionary economic policy would weigh on the yen.
The Bank of Japan’s (BOJ) policy of keeping Japanese rates pinned down to support the economy, combined with rising US interest rates has been a major factor in the Japanese currency’s recent weakness.
BOJ Governor Haruhiko Kuroda said earlier in the day the central bank “won’t hesitate to take additional monetary easing steps as necessary”.
High inflation – by Japanese standards if not global ones – had led to some public pressure on policy-makers to change course, but Catril said this pressure had been reduced by the coalition led by Prime Minister Fumio Kishida’s Liberal Democratic Party (LDP) increasing its upper house seats in Sunday’s election.
The US 10-year yield was last at 3.087% having rallied last week.
Away from Japan, fears about the global growth outlook, particularly as central banks look to curb runaway inflation, were pushing flows to safe havens.
“The (dollar) could remain expensive until the risks around elevated global inflation, European energy security and China’s growth outlook have been resolved,” analysts at Barclays said in a note to clients.
“This week’s 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.”
US CPI data is due on Wednesday and markets would likely interpret a high reading as a sign the US Federal Reserve would need to raise rates even more aggressively to combat inflation.
With inflation rampant across much of the world, rate hikes are also expected this week from the Reserve Bank of New Zealand on Tuesday and the Bank of Canada on Thursday.
Energy concerns meant the euro was struggling against more than just the dollar and in early trade Monday it was at 0.85 British pence and 139 yen, just above last Friday’s levels when it hit its lowest since late May against both currencies.
In the latest worry for the European economy, the biggest single pipeline carrying Russian gas to Germany starts annual maintenance on Monday. Flows are expected to stop for 10 days, but governments, markets and companies fear the shutdown might be extended due to war in Ukraine.
The other main economic event this week is Chinese second-quarter GDP on Friday, with investors watching for signs of how hard the economy was hit by Covid-19 lockdowns.
Britain will publish its second-quarter GDP data on Wednesday, but attention is more focused on the ruling Conservative party’s choice of their next leader and prime minister.
Sterling was down 0.38% against the stronger dollar at $1.1986 on Monday morning, having finished a volatile time last week not far from where it started.
- Reuters with additional editing by Jim Pollard