Yen Weakens Past 125 Per Dollar for First Time Since 2002

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Australia’s dollar rebounded from near its lowest level in seven weeks after the nation’s central bank left interest rates unchanged and provided little guidance on whether it would lower them in the future.

The yen weakened beyond 125 per dollar for the first time since 2002 as prospects for higher U.S. interest rates this year spurred demand for the greenback. The U.S. currency has strengthened against 13 of 16 major peers over the past week after Federal Reserve Chair Janet Yellen said in May she expects to raise borrowing costs in 2015. The Reserve Bank of Australia cuts its benchmark last month to a record 2 percent.

“The unchanged decision saw a knee-jerk reaction to take Aussie higher,” said Sue Trinh, senior currency strategist at Royal Bank of Canada in Hong Kong. “There was very limited forward guidance,” suggesting a rate cut isn’t imminent, she said.

The Australian dollar rose 1 percent to 76.84 U.S. cents as of 6:49 a.m. in London, after dropping 2.8 percent over the previous five days. It touched 75.98 on Monday, the least since April 15. The yen rose 0.1 percent to 124.64 per dollar, after earlier depreciating to 125.05, the weakest level since Dec. 6, 2002. The dollar was at $1.0931 per euro from $1.0927 on Monday, when it gained 0.5 percent.

The yen has dropped more than 30 percent since 2012 as the Bank of Japan carries out unprecedented bond buying to spur inflation.

“The underlying fundamental is that the BOJ’s quantitative easing measures are still very much in play, so we’re seeing a continuation of the trend of the last couple of years,” said Greg Gibbs, a strategist at Royal Bank of Scotland Plc in Singapore. “We’ve seen a small improvement in the U.S. economy, and that’s been a contributing factor” to renewed dollar strength versus the yen, he said.

Policy Divergence

The Fed is looking to raise borrowing costs as early as this year amid a strengthening U.S. economy, after holding rates near zero since late 2008. By contrast, the BOJ is buying 80 trillion yen ($642 billion) of government debt a year.

“The dollar’s climb may slow beyond 125 yen,” even as the trend for a weaker yen remains intact, said Yuji Kameoka, chief currency strategist at Daiwa Securities Co. in Tokyo. “I expect lots of selling into dollar rallies.”

RBA Governor Glenn Stevens and his board left the cash rate unchanged in Sydney Tuesday, as predicted by markets and economists.

“Aussie gained as a minority in market who bet the RBA would cut today unwound their positions,” said Masafumi Yamamoto, a senior strategist at Monex Inc. in Tokyo. “The Aussie’s direction will depend on domestic data, especially whether the jobless rate will deteriorate or improve, and the strength of the U.S. dollar.”

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