Yen hits multi-year low

The yen hit a 4-1/2 year low versus the dollar and a 15-year trough against sterling on Friday after the Bank of Japan left interest rates on hold and gave limited guidance on future tightening. The dollar was broadly firmer as investors expected US inflation data could boost the view the next move from the Federal Reserve on rates would be up rather than down.
The BOJ left rates at 0.5 percent and Governor Toshihiko Fukui said he had no preconceived idea about a future rate rise, adding he wanted to be more convinced on the sustainability of domestic capital spending and consumption.
"There was nothing to scare the sellers of yen. The pricing in the market is still that the next rise will be late in the third quarter, and with a lot of (other) central banks expected to increase rates before then, the yen remains the main funding currency," said Niels Christensen, FX strategist at Nordea in Copenhagen.
By 1115 GMT, the dollar was up 0.5 percent at 123.50 yen, its highest since December 2002. Technical strategists say from here, the path is fairly clear up to 125.70 yen.
The euro was also up 0.5 percent at 164.33 yen, closing in on the record high above 164.60 set earlier in June. The single currency was steady at $1.3310, having hit an 11-week low this week. Both sterling and the Australian dollar hit 15-year highs versus the low-yielding yen.
Rising equity markets contributed to a risk-loving environment, encouraging carry trade investments funded by cheap borrowing in the yen. Steve Barrow, currency strategist at Bear Stearns, said the fact that currency volatility has remained low despite the recent sell-off in bond markets and jitters in equities was further adding pressure on the Japanese currency.
"This gives the market a bit more confidence that you can buy dollar/yen and weather a bit of risk aversion," he said. He added that risks to his six-month dollar/yen forecast of 129 were to the upside, and forecast euro at 180 yen. Rallying US Treasury yields and recent hawkish rhetoric from the Federal Reserve have wiped out expectations for a Fed interest rate cut this year. These expectations had weighed on the dollar for several months. The US inflation data due at 1230 GMT is expected to show the core consumer price index rose by a moderate 0.2 percent in May from April.