The dollar climbed along with Treasuries after the Bank of Japan maintained its ultra-loose policy settings.
(Bloomberg) — The dollar climbed along with Treasuries after the Bank of Japan maintained its ultra-loose policy settings.
The Bloomberg Dollar Spot Index rose 0.4% and 10-year US yields dropped as much as seven basis points to 3.47%. Japan’s central bank kept its main policy settings unchanged, leaving its negative interest rate at -0.1% and 10-year bond yields around 0%, according to a statement Wednesday.
The decision is unlikely to douse speculation that the BOJ is edging toward policy normalization as inflation accelerates. The central bank’s surprise policy tweak in December had rocked global markets and traders have continued to test the BOJ by pushing the benchmark bond yield above the ceiling for successive sessions.
“There are some good levels at around 134, 135 for investors to take dollar-yen to,” said Shyam Devani, macro trader at SAV Markets in Singapore. “This story is not over yet — investors will continue looking to test the BOJ”
Japanese investors are the largest foreign holders of Treasuries, but have been cutting their overseas bond exposure as the cost to hedge a volatile yen has skyrocketed. They sold a record ¥21.7 trillion ($169 billion) of foreign bonds last year, according to preliminary data from the Ministry of Finance going back to 2005.
–With assistance from Ruth Carson.
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