After strong election results in Japan’s ruling conservative alliance suggested no change to lax monetary policies, the dollar rose to a 24-year high against the yen on Monday. Additionally, concerns about global economic growth supported the safe-haven currency more widely.
In early trade, the dollar increased to 137.28 yen, its highest level since late 1998. It subsequently somewhat reduced those gains and was recently up at 136.93, up 0.6 percent. The euro fell 0.38 percent to $1.0144, returning to a 20-year intraday low set on Friday. Moreover, the dollar index rose 0.4 percent to 107.3 as a result.
According to Rodrigo Catril, a currency analyst at National Australia Bank the dollar is rising across the board. However, the dollar-yen is driving the trend (OTC: NABZY). The dollar received support from investors’ reluctance to hold risky investments. Hence, the yen should drop after Sunday’s election outcome in Japan. This indicates that the nation’s expansionary economic strategy would remain still.
A significant contributor to the recent depreciation of the Japanese yen has been the Bank of Japan’s (BOJ) strategy of maintaining low Japanese interest rates to stimulate the economy in combination with increasing U.S. interest rates. In a statement earlier in the day, BOJ Governor Haruhiko Kuroda said the institution won’t hesitate to take more monetary easing initiatives as necessary.
High inflation, at least by global standards, had put some public pressure on decision-makers to alter course, but Catril claimed that because of the coalition led by Prime Minister Fumio Kishida’s Liberal Democratic Party (LDP) winning more seats in the upper house on Sunday’s election, this pressure had been lessened. After rising last week, the U.S. 10-year yield was last at 3.087 percent.
As the Fed chooses between 50 and 75 basis points ahead of the July meeting, this week’s U.S. CPI will be a crucial piece of the jigsaw. The release of the U.S. CPI data is scheduled for this Wednesday, and the markets are expected to view a high reading as a signal that the U.S. Federal Reserve will need to hike interest rates even more quickly to battle inflation.
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