The Japanese yen fell to a new 20-year low against the dollar on Wednesday, pushed lower by expectations that the Bank of Japan will defy global trends and maintain loose monetary policy.
The yen lost up to 1.4% against the US currency, exceeding 134 yen per dollar. It has fallen about 4% this month and in recent days has approached its lowest level since the start of 2002.
The move came after the BoJ governor said consumers had become “more tolerant” of price hikes, comments he later retracted. Speaking at the FT’s Global Boardroom event, Haruhiko Kuroda said a weaker yen would boost profits for Japanese companies.
Unlike other major central banks, the BoJ has decided not to tighten monetary policy in recent months.
“The dollar has seen a meteoric rise against the Japanese yen over the past three months as the Bank of Japan maintains a dovish policy towards the Federal Reserve,” strategists at Bespoke Investment Group said on Wednesday.
Investors expect policymakers in the United States and the eurozone to take a markedly different stance as they attempt to rein in inflation, a view that has weighed on government bond prices this year.
This weakness continued on Wednesday, with the yield on the 10-year US Treasury rising 0.05 percentage point to 3.03% as the price of debt declined. Fund managers are betting that the Federal Reserve will raise its benchmark rate above 3% next year, a change that has already rippled through financial markets.
Now they are monitoring May’s US inflation report, due Friday, as they assess the state of the economy and the impact of rapid price increases on consumers. The figures are expected to show consumer prices in the United States rose 8.3% last month, matching the pace of increases in April.
Over the past two days, the World Bank and the Paris-based OECD have lowered their forecasts for global growth due to the war in Ukraine and rising energy prices.
As growth slows, soaring inflation is pushing major central banks to raise borrowing costs and withdraw huge monetary stimulus packages introduced at the start of the coronavirus crisis in 2020.
“We’ve had this huge monetary intervention and we’re just starting to see it play out,” said Roger Lee, head of equities at Investec. “The idea that the market has correctly priced this seems very optimistic.”
The European Central Bank is expected to signal a significant shift on Thursday from its longstanding policy of keeping interest rates below zero, with markets anticipating the bank’s main deposit rate to return to positive territory by now. september. The ECB introduced negative rates in 2014 to stimulate lending and spending and has not raised borrowing costs since 2011.
The yield on the 10-year German Bund, a benchmark for the cost of eurozone debt, added 0.06 percentage points to 1.35%, the highest since 2014.
Italy’s equivalent bond yield rose 0.09 percentage point to 3.37%, having nearly tripled since the start of the year, as traders expected weaker eurozone countries to struggle. with economic downturns and higher debt costs.
In equity markets, Wall Street’s S&P 500 stock index fell 1% in New York, reversing a two-day rally earlier in the week as nearly 90% of stocks in the benchmark slid . The tech-heavy Nasdaq Composite fell 0.6%.
Europe’s regional Stoxx 600 stock index fell 0.6%, with banks and industrials among the worst performing sectors as investors weighed the implications of higher rates for economic growth and weaker borrowers in the euro zone.
Elsewhere, Hong Kong’s Hang Seng index rose 2.2%.
Brent, the oil benchmark, rose 2.7% to $123.83 a barrel.