As US Treasury yields reach decade-high levels, the yen is under pressure

22 Sep 2023 , 10:08 AM

The dollar was near a six-month high due to expectations of higher U.S. rates for an extended period, while the yen was at the mercy of surging U.S. Treasury yields on Friday ahead of the Bank of Japan’s (BOJ) closely watched rate announcement.

In early Asian trading, the Japanese yen ended slightly lower at 147.6, hovering near the session’s more than 10-month low of 148.465.

The BOJ is expected to maintain its ultra-easy monetary policies when it announces its interest rate decision later on Friday at the conclusion of its two-day policy meeting, capping off a week filled with central bank policy announcements.

According to data released on Friday, Japan’s core inflation exceeded the central bank’s 2% target for the 17th consecutive month in August.

The surge in U.S. Treasury rates, which reached multi-year highs in the previous session as markets reacted strongly to the Federal Reserve’s hawkish stance on Wednesday, also continued to put pressure on the yen.

The two-year Treasury yield reached a 17-year high of 5.2020% on Thursday, while the 10-year Treasury yield, which the dollar/yen pair often tracks, reached a level of 4.4980%, its highest level since 2007.

The U.S. dollar rose alongside Treasury yields in the previous session, reaching a more than six-month high of 105.74 against a basket of currencies. The index was last stable at 105.39.

The Australian dollar fell 0.1% to $0.6410 against a stronger greenback and was on track to lose 0.3% for the week, reversing some of its gains from the previous week.

Similarly, the New Zealand dollar declined 0.06% to $0.5928, while analysts expected a weekly increase of nearly 0.5%.

The Fed held interest rates steady this week but hinted at the possibility of another increase later this year, maintaining a tighter monetary policy stance than initially anticipated through 2024.

In the previous session, the euro touched a six-month low of $1.0617 before edging down 0.07% to $1.0655.

The pound was down 0.02% at $1.2293 and had previously fallen to a low of $1.22305, nearly six months ago, after the Bank of England (BoE) halted its interest rate hikes a day after Britain’s unexpectedly slowed inflation rate.

The BoE did not raise borrowing costs for the first time since December 2021, leading traders to revise down their forecasts for future rate increases by the institution.

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