Dollar edges up against yen as risk appetite returns

The dollar edged up against the yen and other currencies on Friday, trimming earlier losses, as global investors gingerly dipped their toes back into riskier assets amid rapidly shifting views on US monetary policy.

The dollar edged up 0.1 per cent to 106.850 yen. It had dropped nearly 1 per cent overnight as US Treasury yields retreated from four-year peaks.

The greenback was given some reprieve, however, as yields levelled off.

Japan's Nikkei rose 0.4 per cent and MSCI's broadest index of Asia-Pacific shares outside Japan adding 0.9 per cent.

US Treasury yields

The market focus was on whether equities could extend their gains should US yields resume rising.

“For the dollar to attempt a run towards 108 yen again, global equities will have to show resilience even when long-term Treasury yields reach 3 per cent,” said Masafumi Yamamoto, chief forex strategist at Mizuho Securities in Tokyo.

As recently as February 16, the dollar touched a 15-month low of 105.545 yen when the steady rise in US yields triggered volatility in the broader equity market.

The yen tends to be bought in times of market volatility, thanks to its perceived status as a safe haven currency.

“US yields may have declined a little bit (from their peaks) but caution towards their recent rise and their negative impact on equities linger,” said Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo. “The yen will attract demand under such conditions.”

Benchmark Treasury 10-year note yields rose to a four-year high of 2.957 per cent on Wednesday before dropping to as low as 2.904 per cent on Thursday. It last yielded 2.928 per cent.

The prospect of the US government boosting debt issuance to fund expanded stimulus and the Federal Reserve hiking interest rates steadily this year are some of the factors that have contributed to the rise in yields.

The dollar index against a basket of six major currencies rose 0.2 per cent to 89.865.

The index had reached a 10-day high of 90.235 on Thursday, from a three-year trough of 88.253 late last week, before its rally lost a bit of steam. It was on still on track to gain 0.9 percent on the week.

The euro slipped 0.2 per cent to $1.2306 after gaining 0.4 per cent the previous day. The common currency has lost 0.9 per cent so far this week, following its ascent to a three-year top of $1.2556 on February 16.

Japan's consumer inflation

The yen showed little reaction to data which showed Japan's annual core consumer inflation rate was unchanged in January from the previous month, reinforcing views that the Bank of Japan remains distant from exiting its super loose monetary policy.

Japan's nationwide core consumer price index, which includes oil products but excludes volatile fresh food costs, rose 0.9 per cent in January. The pace remained far from the BOJ's 2 per cent inflation target.

The pound was a shade lower at $1.3947 following overnight gains of 0.3 per cent. Sterling was en route for a weekly loss of about 0.5 per cent.

The Australian dollar dipped 0.2 per cent to $0.7828 after gaining 0.5 per cent the previous day. The Aussie was on track for a loss of 0.85 per cent this week. The New Zealand dollar fell 0.5 per cent to $0.7303 in the wake of the greenback's broader strengthening.

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