Dollar hits new 24-year peak to yen as BOJ stays dovish; BOE looms

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TOKYO, September 22 (Reuters) –

The US dollar rose to a fresh 24-year high against the yen after the Bank of Japan stayed on ultra-loose stimulus on Thursday, just hours after the Federal Reserve surprised markets with rate projections of strong interest.

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The greenback had already risen to a new 37-year high against sterling ahead of the Bank of England’s policy announcement later in the day, and to a two-decade high against the euro.

It also hit new highs against regional currencies from the Australian and New Zealand dollars to the offshore Chinese yuan and Korean won, as well as the Singapore dollar and Thai baht.

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The yen went on a wild ride immediately following the BOJ’s decision to keep short-term rates negative and continue to peg the 10-year government bond yield near zero, bolstering market expectations that Japan’s central bank will continue to swimming against a global. tide of monetary tightening, despite a weaker currency.

The dollar jumped to 145.405 yen for the first time since August 1998, but then eased back to 143.50, before last trading 0.45% higher than on Wednesday at 144.75 .

“There could be concern about intervention, or even a rate check by the BOJ,” said Tohru Sasaki, head of Japan market research at JP Morgan in Tokyo. “It could also just be the result of market illiquidity.”

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“The market will be nervous, there will be some volatility for a while, but ultimately, in the medium term, the yen’s weak trend will continue,” Sasaki said. “The 1998 high was 147.60, so the market will be looking at that level.”

Japan’s top currency diplomat later said officials had not intervened in the market.

The dollar index, which measures the greenback against a basket of six counterparts including the yen, euro and sterling, had risen to 111.79 for the first time since mid-2002.

On Wednesday, the Fed issued new projections that showed rates peaking at 4.6% next year with no cuts until 2024. It raised its target interest rate range by 75 basis points (bp) during overnight to 3.00%-3.25%, as widely expected.

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The dollar was already underpinned by demand for safe-haven assets after Putin announced he would call up reservists to fight in Ukraine and said Moscow would respond with the full force of its vast arsenal if the West pursued what it called the his “nuclear blackmail”. the conflict there.

“Both the Fed projections and Russia headlines contributed to the dollar’s strength, which was particularly sharp against the euro and other European currencies,” said Shinichiro Kadota, senior currency strategist at Barclays in Tokyo.

“Commodity currencies also took a big hit due to deteriorating risk sentiment.”

The euro weakened to a new 20-year low of $0.9807, before trading 0.11% lower on Wednesday at $0.98265.

Sterling fell to a new 37-year low of $1.1221, and last changed hands at $1.12425, down 0.24% from the previous session.

The market currently sees an 80% chance of a 75bp rate hike by the BOE, and likely a 20% half-point increase.

The Aussie fell 0.47% to $0.6602 after touching $0.6583, its lowest since mid-2020. Liquidity in the currency may be tight with Australia observing a bank holiday.

(Reporting by Kevin Buckland; Editing by Edwina Gibbs, Ana Nicolaci da Costa and Kim Coghill)