Kazuhiro Nogi/AFP via Getty ImagesThe Japanese yen is taking a hit from hawkish remarks by Federal Reserve policy makers this week, extending its weakness against the U.S. dollar for a fourth straight session.Japan’s currency was trading at around 121 yen per dollar USDJPY as of Wednesday, a day after the Asian currency weakened to a six-year low against the greenback. The chart below captures this week’s selloff, and illustrates how much the yen has depreciated against the dollar in just the past three days. The yen has fallen versus the greenback by more than 5% this month.Source: FactSetRemarks by Loretta Mester, head of the Fed’s regional bank in Cleveland, have the potential to further extend the yen’s decline against the dollar, according to Marc Chandler, chief market strategist at Bannockburn Global Forex. On Wednesday, Mester said she presumes that policy makers will need to do “some” 50 basis point rate increases this year. Her comments come just two days after Fed Chairman Jerome Powell said the central bank could deliver rate increases of larger than 25 basis points each at future meetings.“A consensus is being formed at the Fed for a 50 basis point rate hike in May, and the market continues to press for a pain threshold for the yen. Wherever it is, we haven’t gotten to it yet,” Chandler said via phone. “The yen is still taking it on the chin and bearing the brunt of Powell’s comments, which have lit the dollar.” The prospect of higher interest rates in the U.S. relative to the rest of the world tends to push the dollar and Treasury yields higher, particularly against a country like Japan where policy makers are keeping ultra-easy monetary policy in place.The Bank of Japan, unlike much of the rest of the world, is grappling with weak price pressures: It still sees inflation remaining short of its 2% target even though consumer expectations hit a record high this month. Last week, policy makersmaintained their target for short-term interest rates at minus 0.1% and their target for the 10-year Japanese government-bond yield at around zero.Read:BOJ’s Kuroda says it’s still too early to discuss exit from monetary easingThe BOJ’s yield curve control “appears to be acting as a brake,” B. of A. rate strategists Tomonobu Yamashita and Shusuke Yamada wrote in a note on Wednesday. However, the risks for Japanese yields are “skewed to the upside” and the 10-year yield on the Japanese government bond could rise to 0.4% by year-end, from a current level around 0.2%, if Japan’s central bank adjusts its yield-curve control target and exits its negative interest rate policy, they said.On Wednesday, Treasury yields edged off their 2019 highs, with the 10-year yield BX:TMUBMUSD10Y around 2.4%, while the U.S. Dollar Index DXY was up 0.2%.
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