Rising U.S. yields push yen to lowest in nearly 3 years

[October 12, 2021]  By Saikat Chatterjee

LONDON (Reuters) - The Japanese yen held near its weakest levels versus the U.S. dollar in almost three years on Tuesday as a relentless rise in Treasury yields widened the yield advantage in favour of the greenback.

The dollar was at 113.19 yen at 0809 GMT having touched 113.50 in Asian trading, its weakest since December 2018.

The yen's recent weakness -- falling 4% in three weeks -- comes at a time when global bond yields have surged due to inflationary concerns. Ten-year U.S. yields topped 1.60% for the first time since late May. [US/]
 

"The pick-up in market-based measures of inflation expectations and the hawkish shifts from central banks outside of Japan are contributing to the sell-offs in global fixed income markets and the yen," MUFG strategists said in a note, noting the yen has the strongest correlation with U.S. yields.

A Deutsche Bank monthly market sentiment survey in October noted that an overwhelming majority of respondents expect U.S. Treasury yields to rise from current levels.

The yen also stayed in sight of a multi-month lows against other majors with sterling, the euro and the Aussie dollar all trading just off three month highs hit against the Japanese currency the previous day, when the Aussie enjoyed its best session against the yen in eleven months.

The dollar index, which measures the greenback against a basket of other major currencies was at 94.30, not far from a one-year high of 94.504 touched at the end of September, as traders positioned themselves for the U.S. Federal Reserve to announce a tapering of its massive bond buying programme in November.

Banknotes of Euro, Hong Kong dollar, U.S. dollar, Japanese yen, GB pound and Chinese 100 yuan are seen in this picture illustration, in Beijing, China, January 21, 2016. REUTERS/Jason Lee/File Photo

"The primary driver of the move is the further rise that we've seen in U.S. Treasury yields - so it's a fairly simple story of a widening rates differential...adding to the attraction of the carry trade," said National Australia Bank's head of foreign exchange strategy, Ray Attrill.

In cryptocurrencies, bitcoin edged off a five month high, falling 1.3% in Asian trading to $56,700. Ether, the world's second biggest cryptocurrency dropped 1.54% to $3,489.

Graphic: World FX rates https://graphics.reuters.com/GLOBAL-CURRENCIES-PERFORMANCE/0100301V041/
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Graphic: FX performance https://fingfx.thomsonreuters.com/gfx/
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(Reporting by Saikat Chatterjee; Additional reporting by Alun John in HONG KONG; Editing by Kirsten Donovan)

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