By Alun John

HONG KONG (Reuters] – While the yen edged higher in anticipation of Tuesday’s central bank policy meeting, the dollar appeared to disregard U.S. Treasury Yields reaching new close-to-two-year highs upon their return from a long weekend holiday.

Due to increasing energy costs, the Bank of Japan is likely to slightly increase its inflation forecasts in a quarterly outlook, Reuters reports last week citing sources. But, this projection will remain well below the BOJ’s 2% goal.

Tokyo is likely to close the meeting by mid-morning.

In early trading, the dollar fell as high as 0.15 percent against the Japanese yen to 114.43 dollars per dollar. It was slightly weaker than the dollar and the euro.

However, the weakness of the dollar occurred even though U.S. Treasury yields were continuing to rise. The short end reached new pandemic highs which is normally supportive for greenback.

As trading resumed after the U.S holiday on February 20, 2020, two-year yields surpassed 1% at the Asia open. Five-year yields rose by 3.6bps to 1.5960%. This is the highest level since January 2020. [US/]

This year yields are rising with traders anticipating that the Federal Reserve will increase interest rates in March. However, the has seen a 0.52% decline year-to-date, as it measures the greenback relative to six peers.

Ray Attrill is the head of FX strategy at National Australia Bank.

According to him, the reason for this anomaly could be investors reacting quickly to the historical fact that the dollar peaked at the Fed’s rate hikes or traders trading in anticipation of an increase in global economic growth. He said that he wasn’t convinced by either of these theories.

After a rally in the currencies early last week, sterling was stable at $1.3657.

Analysts at ING stated that any weakness in the pound due to British political uncertainty, where Boris Johnson, Prime Minister, is under pressure to resign from, will be managed as aggressive Bank of England tightening.

This week’s calendar does not include any major economic data. Investors, however, will pay attention to speeches by Christine Lagarde, President of European Central Bank, and other ECB members as well as the minutes from Thursday’s December policy meeting.

The dollar (AUD=D3> was steady at $0.722.

It was at $42,353 and had been declining since November’s record of $69,000, which it reached in November.