Dollar Up, Yen Down as BOJ Continues Dovish Stance

The dollar was up on Monday morning in Asia. The Japanese yen continued a downward trend after the Bank of Japan (BOJ) stepped into the market to defend its implicit yield cap. Bitcoin climbed to nearly its highest level in the year to date.

The U.S. Dollar Index Futures that tracks the greenback against a basket of other currencies was up 0.35% to 99.170 by 12:11 AM ET (4:11 AM GMT).

The USD/JPY pair rose 0.83% to 123.07.

The AUD/USD pair was up 0.21% to 0.7528, while the NZD/USD pair was down 0.29% to 0.6950.

The USD/CNY pair edged up 0.13% to 0.6748, while the GBP/USD pair was down 0.26% to 1.3154.

The yen fell to as low as 122.78 per dollar, the weakest since December 2015, giving up Friday’s small gains when the BOJ did not step in to defend its target. However, the BOJ offered to buy unlimited amounts of 10-year Japanese government bonds (JGBs) at 0.25% on Monday morning, after the 10-year JGB yield climbed up to a six-year high of 0.245%.

“While a risk of near-term correction has risen given the rapidity of its ascent, we expect dollar-yen to remain well-supported at high levels,” Barclays analysts, citing monetary policy divergence and the negative impact from higher commodity prices on Japan’s terms-of-trade, told Reuters.

Japan’s monetary policy must remain loose, deputy chief cabinet secretary Seiji Kihara said on Sunday. BOJ’s dovish approach compares with the U.S. Federal Reserve’s hawkish stance, with more interest rate hikes expected as the year progresses.

Although rising commodity prices have hurt the yen recently, it has given commodities currencies a boost. The Australian dollar was near the previous week’s four-month high, while its Canadian counterpart was at 1.2496 per dollar, near Friday’s two-month peak.

Australia will also hand down its budget on Tuesday, with Treasurer Josh Frydenberg saying on Sunday the budget would mark a very significant material improvement to the government’s bottom line.

However, the latest COVID-19 outbreak could be a potential headwind for the Australian currency, with Shanghai entering a lockdown to curb rising numbers of cases in the city. The dollar was up 0.17% on the offshore yuan on Monday morning to 6.394.

Meanwhile, “stronger-than-expected Eurozone consumer price indexes will add to rates market pricing for European Central Bank tightening, underpinning the euro,” said the Barclays (LON:BARC) analysts. The single currency last traded at $1.0973 and was still feeling the economic impact of the war in Ukraine, triggered by the Russian invasion on Feb. 24.

Also on the data front, the latest U.S. jobs report, including non-farm payrolls, is due on Friday.

However, the data is not expected to have a major effect on U.S. interest rate expectations and the dollar, with the market already bracing for several rate hikes within 2022.

In cryptocurrencies, bitcoin was near the $46,800 mark, after climbing to as high as $47,766 in early trading, the highest level since early January 2022.