(Adds fresh analyst comment, updates prices)
- Dollar gains another 1.5% against yen
- Japanese finance minister warns of risks from yen slump
- Dollar hits highest against Swiss franc since June 2020
The dollar surged on Tuesday to a 20-year high against the Japanese yen, underpinned by the divergence in monetary policy between a Federal Reserve determined to keep a lid on soaring inflation and a Bank of Japan that has kept interest rates ultra-low.
The greenback hit 128.97 yen JPY= , the highest since May 2002. It was last up 1.5% at 128.94 yen. The dollar has risen 5.9% on the yen so far this month, on pace for the largest monthly percentage rise since 2016.
"The BOJ has done the opposite of normalization. They have dug their heels in," said Richard Benson, co-chief investment officer at Millennium Global Investments in London.
Benson believes Japanese monetary authorities could actually intervene to strengthen the yen, but it is not about a particular level.
"I wouldn't be surprised if the BOJ intervenes because they have a lot of dollars and they can just sell them easily," Benson said. "There are obvious numbers to talk about and levels, but the narrative is very much about speed as opposed to level. So slow and gradual is fine."
Japanese Finance Minister Shunichi Suzuki made the most explicit warning against the yen's recent slump on Tuesday, saying the damage to the economy from a weakening currency at present is greater than the benefits from it.
Morgan Stanley, in its latest research note, said the yen's decline versus the dollar was justified amid Japan's worsening terms of trade, with soaring raw materials driving up import costs, as well as contrasting inflation outlooks between the countries.
While Japan's core consumer price index (CPI) data, to be released on Thursday, likely rose 0.8% in March from a year earlier, faster than a 0.6% gain in February, the level is still way below the BOJ's long-held inflation target of 2%.
The dollar index =USD , which measures the greenback against six other currencies, also climbed on Tuesday, rising past 101 for the first time in more than two years. It was last up 0.2% at 100.98.
Providing a dollar lift is the continued rise in U.S. yields. U.S. benchmark 10-year Treasury yields hit 2.93% US10YT=RR on Tuesday, the highest since December 2018, while U.S. 10-year inflation-linked bond yields US10YTIP=RR rose to -0.01%, on the cusp of turning positive for the first time in two years.
Chicago Federal Reserve Bank President Charles Evans, who is not a voter on this year's Federal Open Market Committee, said on Tuesday he is "comfortable" with a round of rate hikes this year that includes two 50 basis-point increases and reaches a neutral setting by year end, but he does not see the need for bigger hikes.
Evans joins a chorus of Fed speakers who are pushing for front-loading the rate increases. The greenback rose to 0.9519 francs versus the Swiss currency, the highest since June 2020 CHF=EBS . It last changed hands at 0.9513 francs, up 0.7%.
The euro EUR= recovered some ground, trading 0.1% higher against the dollar at $1.0791, but stayed just off last week's two-year low of $1.0756.
======================================================== Currency bid prices at 3:32PM (1932 GMT)Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid Previous Change Session Dollar index =USD 100.9800 100.8100 +0.19% 5.558% +101.0200 +100.6900 Euro/Dollar EUR=EBS $1.0785 $1.0781 +0.04% -5.13% +$1.0815 +$1.0762 Dollar/Yen JPY=EBS 128.9250 126.9850 +1.51% +11.97% +128.9350 +126.9800 Euro/Yen EURJPY= 139.05 136.92 +1.56% +6.70% +139.0800 +136.8800 Dollar/Swiss CHF=EBS 0.9517 0.9448 +0.70% +4.30% +0.9519 +0.9434 Sterling/Dollar GBP=D3 $1.2998 $1.3011 -0.11% -3.90% +$1.3040 +$1.2981 Dollar/Canadian CAD=D3 1.2620 1.2608 +0.13% -0.15% +1.2646 +1.2569 Aussie/Dollar AUD=D3 $0.7376 $0.7353 +0.30% +1.46% +$0.7400 +$0.7346 Euro/Swiss EURCHF= 1.0265 1.0184 +0.80% -1.00% +1.0268 +1.0182 Euro/Sterling EURGBP= 0.8296 0.8282 +0.17% -1.24% +0.8314 +0.8280 NZ NZD=D3 $0.6732 $0.6730 +0.04% -1.64% +$0.6764 +$0.6720 Dollar/DollarDollar/Norway NOK=D3 8.8390 8.8605 -0.23% +0.35% +8.8660 +8.7955 Euro/Norway EURNOK= 9.5367 9.5584 -0.23% -4.76% +9.5615 +9.4940 Dollar/Sweden SEK= 9.5421 9.5967 -0.52% +5.81% +9.6185 +9.5383 Euro/Sweden EURSEK= 10.2924 10.3460 -0.52% +0.57% +10.3619 +10.2913 <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ World FX rates https://tmsnrt.rs/2RBWI5EDollar rises vs yen https://tmsnrt.rs/3MdRjNX
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