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Yen weakens to 111 per dollar as U.S. Treasury yields soar By Reuters


© Reuters. FILEPHOTO: This picture illustrates the Euro, Hong Kong Dollar, U.S. dollars, Japanese yen and pound as well as 100 yuan Chinese banknotes. It was taken on January 21, 2016. REUTERS/Jason Lee/Illustration

By Kevin Buckland

TOKYO (Reuters) – The yen traded near an almost three-month low to the dollar and reached a two-week trough versus the euro on Tuesday, as rising bond yields in the U.S. and Europe lured Japanese investors.

It was unchanged at 110.985 per $1, just a little above Monday’s low point of 111.07 which has not been seen since July 5.

The yen was flat at 129.785 against the single currency, a significant change from the previous high of 129.92 on Sept. 14.

While benchmark 10-year Japanese government bond yields remain pinned near zero by the Bank of Japan’s yield curve control policy, equivalent U.S. Treasury yields have soared to a three-month high, touching 1.516% overnight.

The German 10-year bund yields have increased to 0.191%. This is a significant increase from the minus 0.340% they were a week ago.

“The main impact of higher Treasury yields on currencies has been to see make further upward progress, now banging against 111,” Ray Attrill, head of FX strategy at National Australia Bank (OTC:) in Sydney, wrote in a note to clients.

“111 will be a tough (nut) to crack, bearing in mind the pair has spent only two days with time above this level so far this year – and with having been as high as 1.77%.”

The Federal Reserve’s hawkish tone has pushed U.S. yields higher. It announced last week that it might begin tapering stimulus in November, and may flag interest rate rises may be coming sooner than anticipated.

This was reinforced last week by the hawkish tone of the Bank of England, and Norges Bank. They became the first central banks in developed countries to increase interest rates. Other global bond yields have risen.

But despite an initial pop in the – which measures the currency against six major rivals – to as high as 93.526 for the first time in more than a month, it has since moved mostly sideways, and was last not far off from Monday at 93.421.

The dollar was steady at $1.16935 against the euro. This is close to its more than one month high of $1.16835 on Thursday.

However, analysts believe that the dollar will continue to climb over time.

In a research note, Mazen Issa (senior FX strategist, TD Securities) stated that taper isn’t surprising. However, an earlier termination of its program will strengthen the fact that upside risks to U.S. dollars have decreased.

He said that about half the cyclical rise in the U.S. dollars was seen three months after the taper.

TD anticipates that the Fed will end its quantitative easing program in June 2022.

The risk-sensitive Australian currency fell 0.14% at $0.7276. However, it held onto Monday’s 0.4% rally. This was due to concerns over contagion from China Evergrande Group’s debt woes. Iron ore prices also continued their recovery.

After ending Monday flat, New Zealand’s Dollar fell 0.17% at $0.70005.