LONDON: The dollar took a breather Friday, after a sharp run-up fuelled by expectations for a US interest rate hike this year pushed it to a 12-year high against the yen.
In Tokyo late morning trade, the greenback bought ¥123.72, from ¥123.96 in New York where it briefly touched a ¥124.46, its highest level since December 2002.
The surge against the yen underscores growing expectations for the Federal Reserve to raise rates this year, while Japan’s central bank considers further easing monetary policy to prop up a faltering economy.
“The fact that the Fed has shown an intention to raise rates within the year has been behind the weakening of the yen,” Juichi Wako, a senior strategist at Nomura, said.
The chances of a rate hike – which tends to boost demand for dollar-denominated assets – have increased following positive US economic data and comments from Fed chief Janet Yellen last week that rates would go up “at some point this year.”
In Japan, data Friday showed household spending unexpectedly fell in April while inflation and factory output were also lackluster – disappointing figures likely to fuel talk that the Bank of Japan (BoJ) will announce more stimulus this year.
“The BoJ will be forced to take additional easing at some point this year,” Enrique Diaz-Alvarez, chief risk officer financial services firm Ebury, said.
