Kevin Buckland

TOKYO, Reuters – On Wednesday the dollar climbed to a new two-decade high against the yen, buoyed in part by Federal Reserve officials pressing for large-scale interest rate increases, and the Bank of Japan stepping back into the market to defend its ultralow-rate policy.

For the first time since April 2002, the greenback traded at 129.43yen. It was 0.3% lower than its previous trading of 129.295.

Neel Kashkari of the Minneapolis Fed, one of more conservative members on Wednesday’s Federal Open Market Committee, stated that policymakers must take more aggressive measures to reduce inflation if there are any disruptions to global supply chains.

Charles Evans, Chicago Fed president, was speaking earlier to say that while he’s not an FOMC voter, he feels “comfortable” with the current round of rate increases. These include two 50 basis point increases. It is quite a change in direction from one month ago.

The yields on U.S. Treasury bonds climbed higher and increased in Tokyo trading. Ten-year yields reached 2.981% for first time since December 2018.

Contrary to the Fed on Wednesday, the BOJ offered again to purchase unlimited quantities of Japanese government bonds to restrain the increase in Japanese 10-year yields that were exceeding its tolerance limit of 0.25%.

Many analysts believe that the rapid fall in the yen is justified, despite its potential for currency intervention.

Shunichi Suzuki, the Japanese Finance Minister, made Tuesday the most direct warning to date. He stated that the economic damage from weakening currencies is more than its benefits.

“Amid rising U.S. Treasury yields,” actions speak louder that words, with Suzuki’s comments continuing “to go unheeded,” Ray Attrill of National Australia Bank (OTC), stated in a client letter.

“Incoming Fed talk has not done anything to reduce the bond sale-off.”

The currency was measured against six main peers, including the Japanese yen. It edged up slightly to 101.01 but remained above the 101 line. Tuesday’s peak at 101.03 had been reached earlier, an unprecedented level since March 2020.

For the first time since June 2020, the greenback reached 0.95305 franc before moving 0.06% higher at 0.95275.

At $1.0788 the euro was flat, not too far from its low last week of $1.0758. This is the lowest level in almost two years.

China, however, surprised to keep its benchmark lending rate for households and corporates steady on Wednesday. This goes against the trend towards monetary tightening worldwide as major economies fight inflation.

It was at 6.41115 USD, its lowest point since October 2021.