Yen Drops to 8-Week Low as BOJ Acts to Limit Increase in Yields

  • BOJ seen reinforcing commitment to yield-curve control: NAB
  • Treasury yields advance before U.S. monthly payroll report

The yen fell to an eight-week low against the dollar as the Bank of Japan sought to curb an increase in the nation’s bond yields by announcing an unlimited debt-purchase operation.

Japan’s currency headed for a fourth weekly loss, the longest streak since May, as the central bank signaled its resolve to keep 10-year yields at around zero percent. Interbank traders said algorithmic programs were the first to buy dollars versus yen after the BOJ announced its first unlimited fixed-rate bond-purchase operation since February. No bids were tendered after the offer, the BOJ said.

“It’s obviously being seen as reinforcing the commitment to the current ‘about zero percent’ 10-year yield-curve control policy,” said Ray Attrill, global co-head of foreign-exchange strategy at National Australia Bank Ltd. in Sydney. “We are modestly bullish on dollar-yen, looking for no change in the yield-curve control policy but higher U.S. Treasury yields in the weeks ahead, driven by better incoming U.S. data.”

The yen is set to weaken to 114 to 115 per dollar in the coming months and 118 by year-end should the U.S. 10-year yield climb to 2.75 percent, Attrill said. The yield on Japan’s benchmark 10-year securities had more than doubled in the past week to as high as 0.105 percent Friday before the BOJ announced its operation.

  • USD/JPY advances 0.3% to 113.60 after rising to 113.84, highest since May 15
    • EUR/JPY climbs 0.3% to 129.68 after reaching 129.92, strongest since Feb. 2016 
  • BOJ offered to buy benchmark 10-year bonds at 0.11%, according to a statement
  • “We should not be surprised that no one wanted to sell to the BOJ today at its offer rate of 0.11% because the JGB was trading at the time at less than 0.10%,” says Joseph Capurso, a senior currency strategist at Commonwealth Bank of Australia in Sydney
    • “The recent lift in USD/JPY on the back of these moves is an overreaction and may unwind, but something the BOJ will be quietly happy about”
  • Japan’s 10-year yield drops 1bp to 0.09% after earlier rising as high as 0.105%
  • Treasury 10-year yield rises 1bp to 2.38%
  • European government bonds fell Thursday after demand declined at a French sale of 30-year bonds
  • BBDXY gains 0.1% as investors await Friday’s U.S. jobs report to assess the path of Fed interest rates
    • U.S. employers added 178,000 jobs in June, vs 138,000 in May, according to median estimate in Bloomberg survey

— With assistance by Michael G Wilson

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