EPIC UPDATE: YEN HITS 5-WEEK LOW VS DOLLAR, EURO STUCK FOR NOW

TOKYO: The yen languished at five-week lows versus the dollar on Monday after a surge in U.S. bond yields last week, while the euro was sluggish versus the dollar in subdued trade where the ebb and flow of euro zone optimism was seen continuing to drive markets.

The dollar rose as high as 79.66 yen in early trade, its highest in over five weeks, and last stood at 79.59 yen, drawing help from last week’s rise in U.S. Treasury yields to three-month highs.

The 10-year U.S. Treasury yield rose to 1.86 percent last week, bringing its yield advantage over Japanese bonds to nearly 1 percentage point for the first time in three months.

While some market players think an yield gap of about 1 percent is too small to trigger a massive buildup of yen-carry trade, the dollar/yen does tend to have strong correlation with U.S. yields.

“We think U.S. yields are likely to rise further in the near term. The 10-year is likely to hit 2.1 percent if all short-term long positions are unwound,” said Junya Tanase, chief FX strategist at JPMorgan Chase.

“Based on the correlation so far this month, the dollar/yen rate in line with that yield would be 79.98 yen,” he added.
Investors have been selling the yen so far this month, said Kimihiko Tomita, the head of forex at State StreetBank in Tokyo, citing the bank’s monitoring of investor flows. He added that their flows may have dominated a holiday-thinned market.

The euro fetched 98.12 yen, not far from six-week high of 98.43 yen set on Friday.

Against the greenback, the euro was little changed at $1.2333 and seen stuck in a $1.2240-2450 range it has hugged in the past two weeks.