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Dollar up, gains against Japanese yen

Dollar up

USD/JPY climbed 1.2% to 123.47, rising to its strongest level since December 2015

The U.S. dollar traded higher Monday, making gains against the Japanese yen in particular, benefiting from the monetary policy divergence between the two countries.

At 0700 GMT, the Dollar Index traded 0.4% higher at 99.218.

The Bank of Japan moved into the market earlier Monday, offering to buy unlimited amounts of 10-year Japanese government bonds at 0.25% in order to prevent these bond yields from rising above its key target after the benchmark 10-year JGB yield crept up to a six-year high of 0.245%.

This dovish stance contrasts vividly with the U.S. Federal Reserve hiking rates by a quarter percentage point a couple of weeks ago and Fed Chair Jerome Powell indicating that the central bank is prepared to raise rates in half-point increments to combat inflation if warranted.

USD/JPY climbed 1.2% to 123.47, rising to its strongest level since December 2015, and up over 7% in the last month.

Elsewhere, EUR/USD fell 0.3% to 1.0952, still under pressure because of the economic impact of the war in Ukraine.

Inflation figures from major European economies and the Eurozone are due from Wednesday, and while the European Central Bank policymakers will be keen to move to address prices at historically high levels they are also very aware of the headwinds to growth in the region caused by the Ukraine war.

We think that lingering Russia-related downside risk for sentiment and upside risk for commodity prices continue to warrant a stronger dollar and weaker European currencies, said analysts at ING, in a note. Accordingly, the balance of risks for EUR/USD remains skewed to the downside in our view, and we expect a drop to 1.08-1.09 in the coming weeks.

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