The dollar rose to a four-year high against the yen on Wednesday, edging closer to the key 100-yen mark after minutes of the US Federal Reserve's March meeting raised expectations it will finish its bond-buying spree by the end of the year. The US central bank's stance contrasts starkly with aggressive monetary easing steps from the Bank of Japan, which last week pledged to pump about $1.4 trillion into the economy in less than two years in a bid to beat decades-long deflation.
According to the Fed minutes, which were released hours ahead of schedule, a few Fed policymakers expected to taper the pace of asset purchases by mid-year and end them later this year, while several others expected to slow the pace a bit later and halt the quantitative easing program by year-end.
"Once again, the minutes have sounded a slightly more hawkish tone and that's really what's benefiting dollar/yen," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington. The Fed's quantitative easing program is tantamount to printing money and dilutes the value of the dollar. The March minutes, however, may not reflect the current mindset of Fed officials in the aftermath of data last week showing tepid jobs growth last month.
After breaking technical resistance at 99.73 yen - which was a 50 percent retracement of the dollar's drop from its June 2007 high of 124.14 yen to a record low of 75.311 yen set in October 2011 - the dollar rose to a session high of 99.87 yen, its highest level since April 2009. The dollar last traded at 99.84 yen, up 0.8 percent on the day, according to Reuters data.
In the options market, demand for protection against the dollar's decline has dissipated, with three-month risk-reversals trading close to neutral. Demand had been biased for dollar puts, the right to sell dollars, throughout March, but last week's BoJ announcement has essentially served to erase the need for that protection.
The yen temporarily recouped losses after BoJ Governor Haruhiko Kuroda said the bank has taken all necessary steps for now in its easing program, but the bounce was short-lived. "He is saying 'for now' that tells me he will opt for further easing in the future," said Neil Jones, head of hedge fund FX sales at Mizuho Corporate Bank in London. Jones said the BoJ's attempt to reach 2 percent inflation would imply dollar/yen trading at 110.00.
The euro last traded 0.6 percent higher at 130.34 yen , having risen as high as 130.50 yen on Reuters data, its strongest level since January 2010. Against the dollar, the euro was at $1.3058, down 0.2 percent on the day, as investors opted to book profits after it hit a one-month peak of $1.3121.
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