The dollar was up on Tuesday morning in Asia, while the yen hit a fresh three-year low. The Japanese currency continued a sharp fall over bets that surging energy prices will drive Japan’s demand for dollars. Bets also rose that the U.S. will hike interest rates well ahead of its peers.
The USD/JPY pair inched up 0.05% to 113.36, with the yen recording its worst session against the dollar in five months.
“What we’re seeing in currency markets is a combination of the outlook for the Federal Reserve – largely markets are expecting a tapering announcement in November – and what is happening with commodities with a pretty broad rally at the moment,” Commonwealth Bank of Australia (OTC:CMWAY) currency strategist and senior economist Kim Mundy told Reuters.
These factors were affecting the yen, because Japan is a net energy importer “and so spiking energy prices are effectively a tax on consumption” and because it “reiterates the fact that Bank of Japan will probably be one of the last major central banks to even consider reducing ultra-accommodative monetary policy,” she added.
Soaring energy prices, and their inflationary impact, also make it likelier that the U.S. Federal Reserve will begin asset tapering as planned in November 2021 and hike interest rates in 2022 despite last Friday’s disappointing U.S. jobs report.
Other central banks are also paying attention to price concerns, with the Bank of England signaling that it will hike interest rates to curb inflation. The South Korean won fell to 1,200 per dollar for the first time in 14 months after the Bank of Korea kept its interest rate steady at 0.75% as it handed down its policy decision earlier in the day.