By Gertrude Chavez-Dreyfuss and Samuel Indyk
NEW YORK/LONDON (Reuters) – The Japanese yen plunged against the U.S. dollar on Tuesday to its lowest since October 1998, as the Bank of Japan’s ultra-loose monetary policy was in stark contrast to an aggressive Federal Reserve determined to stamp out soaring inflation.
The yen dropped to a new 24-year low of 136.455 per dollar, extending losses which have already seen it shed more than 18% of its value versus the greenback this year.
Colin Asher, senior economist at Mizuho said yen moves appeared mainly flow-driven.
“The dollar broke through the old high at 135.60 yen and triggered stops taking it through the big figure at 136.0 and beyond,” Asher noted.
“The rationale is the same as last week and the week before and the week before: The BoJ will be the last of the G10 to hike, the Fed is accelerating the pace, and (there is) a wider yield spread,” he added.
The yen lost more ground after the BoJ on Friday dashed any expectations of a change in policy and continued to stand alone among other major central banks in its commitment to ultra-easy monetary settings.
Instead it has been ramping up bond-buying to hold 10-year yields in a targeted 0% to 0.25% range. But despite its efforts, the yield remains at the upper end of that target
Earlier in the day, Japanese Prime Minister Fumio Kishida effectively gave the green light to sell yen when he said the BoJ should maintain its ultra-loose monetary policy.
By afternoon trading, the yen was at 136.20 yen per U.S. dollar, just off the earlier 24-year low. The yen was also down 1.3% at 143.78 per euro, its lowest since June 9.
The yen has lost more than any other major currency against the greenback, as the BoJ’s dovish policy stance diverged from the general hawkishness among global policymakers.
Graphic: Falling yen- https://fingfx.thomsonreuters.com/gfx/mkt/xmvjowrmwpr/falling%20yen.JPG
In other currencies, the dollar index was little changed at 104.41, but it was supported overall by expectations of hefty rate increases at the upcoming Fed meetings.
Richmond Fed President Thomas Barkin added to the U.S. central bank’s hawkish rhetoric on Tuesday, saying that Fed Chair Jerome Powell’s guidance of a 50 or 75 basis points rate hike in July is “reasonable.”
Earlier, the dollar slipped after data showed U.S. existing home sales tumbled to a two-year low in May as prices jumped to a record high and mortgage rates increased further, pushing out entry-level buyers from the market.
The euro, on the other hand, was firmer at $1.0529, up 0.2%. It rose after European Central Bank chief economist Philip Lane said the ECB will raise rates by 25 basis points at its July meeting, but the size of its September hike is still to be decided, suggesting a larger 50 basis points hike is possible.
Sterling also rose against the dollar, up 0.4% at $1.2290 on hawkish comments from Bank of England policymakers.
BoE chief economist Huw Pill said on Tuesday the central bank would need to raise rates further to tackle surging inflation.
Currency bid prices at 3:02PM (1902 GMT)
Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid
Dollar index 104.4000 104.4400 -0.02% 9.133% +104.5300 +103.9300
Euro/Dollar $1.0533 $1.0510 +0.22% -7.34% +$1.0583 +$1.0509
Dollar/Yen 136.5450 135.0600 +1.10% +18.61% +136.6150 +134.9400
Euro/Yen 143.83 141.97 +1.31% +10.35% +143.8900 +141.9600
Dollar/Swiss 0.9662 0.9677 -0.14% +5.94% +0.9683 +0.9632
Sterling/Dollar $1.2279 $1.2248 +0.26% -9.20% +$1.2324 +$1.2243
Dollar/Canadian 1.2920 1.2981 -0.47% +2.18% +1.2985 +1.2907
Aussie/Dollar $0.6976 $0.6954 +0.31% -4.04% +$0.6994 +$0.6935
Euro/Swiss 1.0177 1.0168 +0.09% -1.85% +1.0216 +1.0167
Euro/Sterling 0.8578 0.8579 -0.01% +2.10% +0.8610 +0.8569
NZ $0.6335 $0.6330 +0.09% -7.43% +$0.6363 +$0.6318
Dollar/Norway 9.8480 9.8920 -0.35% +11.89% +9.9015 +9.7770
Euro/Norway 10.3764 10.4119 -0.34% +3.63% +10.4236 +10.3170
Dollar/Sweden 10.0960 10.1052 +0.05% +11.96% +10.1297 +10.0380
Euro/Sweden 10.6355 10.6304 +0.05% +3.92% +10.6591 +10.6180
(Reporting by Samuel Indyk in London and Gertrude Chavez-Dreyfuss in New York; Additional reporting by Sujata Rao in London; Editing by Jonathan Oatis)