Dollar climbs to two-month high vs yen


The dollar rose against the yen on Monday as the Bank of Japan's offer last week to buy an unlimited amount of bonds, and an unexpected drop in Japanese May machinery orders, pressured the Japanese currency.

BOJ Governor Haruhiko Kuroda on Monday reiterated the central bank's pledge to keep Japanese government bond yields anchored near zero.

Yuriko Nakao | Bloomberg | Getty Images

"It's the global backdrop of rising bond yields, 10-year Treasuries most importantly," said Mazen Issa, senior FX strategist, at TD Securities in New York.

The spread between 10-year U.S. Treasury yields and their Japanese counterpart is close to the widest in nearly two months, drawing bets that play on the divergence between rising Western government bond yields and low Japanese equivalents.

"The BOJ has provided a reminder that while everybody else has put in a bit of a hawkish pivot, if you will, the BOJ is very much not in that camp yet," Issa said.

The was up 0.02 percent to 114.05 yen, after hitting 114.29 yen, its highest since May 11, earlier in the session.

"At the current level we would not be chasing the move higher here, especially not before earnings," said Alvise Marino, FX strategist at Credit Suisse in New York.

"Dollar-yen, of course, remains very sensitive on the risk front."

Why weakness in yen will be curtailed

The dollar index, which tracks the greenback against six major rivals was unchanged.

Traders were wary of adding big positions ahead of Fed Chair Janet Yellen's semi-annual monetary policy testimony before Congress on Wednesday and U.S. consumer inflation data on Friday.

"It's been pretty quiet. There's a lot more event risk later in the week," Issa said.

Meanwhile, the Canadian dollar was little changed against its U.S. counterpart while investors awaited a Bank of Canada interest rate decision on Wednesday.

Forecasters are divided on whether the central bank will hike rates but data from the overnight index swaps market show that money markets are almost fully priced for an increase.

"The Canadian dollar was the first currency to reprice in a hawkish direction, and this will also be the first one now to have a bit of a test, so that's the one we will be looking at the most closely," Marino said.