US dollar charges to a two-month peak against the yen as Fed and BOJ’s policy outlooks diverge

The dollar rose against the yen on Monday as the Bank of Japan’s offer last week to buy an unlimited amount of bonds drew investors’ focus to the divergent monetary policy outlook between the US Federal Reserve and the Bank of Japan.

BOJ Governor Haruhiko Kuroda on Monday reiterated the central bank’s pledge to keep Japanese government bond yields anchored near zero.

“It’s the global backdrop of rising bond yields, 10-year Treasuries most importantly,” said Mazen Issa, senior FX strategist, at TD Securities in New York.

The spread between 10-year US Treasury yields and their Japanese counterpart is close to the widest in nearly two months, drawing bets that play on the divergence between rising Western government bond yields and low Japanese equivalents.

“The BOJ has provided a reminder that while everybody else has put in a bit of a hawkish pivot, if you will, the BOJ is very much not in that camp yet,” Issa said.

The greenback was up 0.15 per cent to 114.05 yen, after hitting a two-month high of 114.29 yen, earlier in the session.