SINGAPORE- The yen fought for a footing on Tuesday, following its worst session in 16 months, as the Bank of Japan pins down bond yields at a time when they are rising sharply in the rest of the world.
The Japanese currency fell as much as 2.4 percent to 125.10 to the dollar overnight, its lowest since August 2015, before recovering to 124.24 in volatile morning trade in Tokyo.
The US dollar was broadly steady elsewhere, keeping the euro at $1.0988 and capping a recent rally in the Australian dollar to hold it at $0.7483.
Japan’s central bank bought a little more than $500 million in bonds on Monday and has vowed three more days of unlimited purchases to defend its 10-year yield target of 0.25 percent.
The move, a demonstration of resolve to keep Japan’s monetary policy ultra easy, underscores the stark contrast with an ever-more-hawkish sounding US Federal Reserve and has tipped the already-sliding yen off a cliff.
It is down nearly 7 percent this month and almost 10 percent on a resurgent Aussie. But with Japanese government bond yields (JGBs) barely retreating it is clear that some investors doubt the longevity of Japan’s policy.
“Anyone who watched the RBA ‘cap’ blow is probably excitedly (and logically) short JGBs right now hoping for a similar move in Japan rates,” said Brent Donnelly, president at analytics firm Spectra Markets, referring to the Reserve Bank of Australia’s abandonment of its yield target in November.
Minutes from the Bank of Japan’s March meeting published on Tuesday showed policymakers stressing the need to keep monetary policy ultra-loose, even as some of them saw signs of growing inflationary pressure.
