Kevin Buckland

TOKYO, Reuters – While the dollar gained on Thursday due to expectations of an aggressive Federal Reserve monetary tightening it was still well below its previous day peak amid concern about what a meeting of finance ministers would say about its rapid appreciation.

Following a rise to a record 129.430 on Wednesday, the greenback climbed 0.36%, to 128.335yen.

Following a decline in the previous session after a peak of 101.03 for more than two years, the – that measures the currency against six other peers including the Japanese yen – ticked up 0.1% to 100.45.

The dollar eased overnight. Benchmark Treasury yields fell to close to 3.3% from their highest point since December 2018. This was due to dip buyers. However, those yields also rose in Tokyo on Thursday.[US/]

Westpac strategists said in a client letter that few central banks are going to match the Fed for this year’s policy hikes or balance sheet retrenchment. This creates a significant policy differential for the USD.

According to them, the dollar index “should be bid in this environment with talk about 101-102 likely increasing near term”.

San Francisco Fed President Mary Daly said on Wednesday she believed the case for a half-percentage-point rate hike next month is “complete” and “solid”, adding to recent comments from other Fed officials backing bigger rate increases.

Markets have been priced to receive half-point increase in May and June.

The BOJ, however, offered Wednesday to purchase unlimited quantities of Japanese 10-year government bonds in four sessions. This was to offset yields that were higher than the zero-percent target of 0.25%. It also demonstrated its willingness to use ultra-easing stimuli ahead of next week’s policy meeting.

BOJ Governor Haruhiko Kuroda maintains that weak yen is generally good for economy. But, Kuroda admitted this week that recent moves could be detrimental to Japanese business plans.

Shunichi Suzuki (Finance Minister) was even more assertive, declaring Tuesday that the current weakening of the yen has greater economic consequences than its present benefits. It is his strongest yet.

Janet Yellen, U.S. Treasury Secretary is scheduled to meet him this week at the Group of 20 financial leader’s gathering in Washington D.C. This will prompt traders to cut back on bearish yen betting on stronger currency rhetoric.

Japanese policymakers “haven’t fully utilized their verbal interventions toolkits yet. The next phase would usually involve describing moves in terms of speculative and threatening to take decisive action,” Adam Cole, RBC Capital Markets’ chief currency strategist, stated in a research paper.

The hurdle to the next step in physical intervention might be less than we think.

However, when asked if intervention would be effective, he stated that it could restore some balance to the markets and slow down the JPY’s depreciation. But, longer-term, the BOJ is not likely to absorb all the JPY sales we expect from Japan once the Fed hiking cycle starts properly.

Other currencies were down 0.11%, or $1.08425 to the euro, and sterling fell 0.14 to $1.30555.

Australian dollars fell 0.2% to $0.7436

New Zealand’s dollar fell 0.40%, to $0.67755, due to weaker-than-expected consumer prices data.