by AFP
The dollar broke through the 110 yen barrier Tuesday for the first time in a year as optimism about the global economic outlook and rising US bond yields see investors turn away from the safe haven Japanese unit.
The greenback hit 110.18 yen in afternoon trade as investors grow increasingly confident that world growth will pick up pace this year thanks to huge stimulus spending, particularly by the United States, with predictions it could go as high as 115 yen.
With the US government pressing ahead with a massive spending spree to kickstart the world’s top economy, there is a growing expectation that inflation will rocket over the coming months.
That has led to a rise in Treasury yields to one-year highs owing to bets that the Federal Reserve will have to lift interest rates earlier than its estimated 2024 timeline.
The yen is considered a go-to currency in times of turmoil and uncertainty and the unit strengthened against the dollar over the past 12 months owing to ongoing concern about the impact of the pandemic.
But the rollout of vaccines and passage of Donald Trump’s near-$1 trillion stimulus at the end of last year, followed by Joe Biden’s $1.9 trillion package soon after, have raised expectations for a strong recovery.
The dollar is up almost six percent from its recent low seen at the start of January.
“The dollar-yen trend is backed by the rise in Treasury yields as the market focuses on the extent of the potential US economic recovery,” said Masahiro Ichikawa, at Sumitomo Mitsui DS Asset Management.
“The dollar could rise to as high as 115 yen by the end of the year, depending on the pace of the recovery.”