Japanese Yen tumbles as BOJ intervenes to keep bond yields pinned down

The Japanese yen slipped to a six-year low on Monday, after the Bank of Japan stepped into the market to stop government bond yields from rising above its key target, while bitcoin jumped to nearly its highest this year.

The BOJ, on Monday morning, offered to buy unlimited amounts of 10-year Japanese government bonds (JGBs) at 0.25%, after the 10-year JGB yield JP10YTN=JBTC crept up to a six-year high of 0.245%.

The dollar rose to as high as 123.1 yen in morning trade, its strongest since December 2015, and was last at 122.9, up 0.7% on the day. It has climbed nearly 6% on the yen in the last 12 sessions.

"The market sees monetary policy divergence between the US and Japan as the key driver of dollar-yen, so in contrast to the hawkish Fed comments recently, the (BOJ's action) gives the impression that the BOJ remains dovish, and that's leading to a higher dollar-yen," said Shinichiro Kadota, senior currency strategist at Barclays in Tokyo.

"I think the risk is still to the upside in the near term, especially if this monetary policy divergence story stays intact. But the speed has been quite fast and it does seem a little overheated, so if we see any contrary headlines, we could see some correction as well," he added.

The 10-year Treasuries US10YT=RR yield was last 2.5046%, having jumped 33 basis points last week.

High commodity prices are also hurting the yen as they contribute to a widening of Japan's trade deficit, though at the same time they have provided a powerful impetus to commodity currencies.

The Aussie dollar AUD=D3 was at $0.752 holding near last week's four-month high, while the Canadian dollar CAD= was at 1.249 per dollar, just off Friday's two-month peak.

Aussie currency watchers are also looking out to Australia's budget on Tuesday. Australia's Treasurer said on Sunday the budget would mark a very significant material improvement to the government's bottom line.

One possible headwind for the Aussie is the COVID-19 situation in China, after Shanghai said on Sunday it would lockdown the city to carry out COVID-19 testing.

The dollar climbed as much as 0.24% on the offshore yuan CNH= on Monday morning to 6.3986, before paring gains.

The euro EUR= was last at $1.0956, down 0.25% having edged slightly lower in recent days, still under pressure because of the economic impact of the war in Ukraine.

"The balance of risks suggests EUR/USD may test 1.0800 in coming weeks," said analysts at CBA.

Inflation figures from major European economies and the eurozone are due from Wednesday, and "the European Central Bank is in a bind with growth headwinds and very high inflation," CBA said.

Sterling was 0.19% softer at $1.3157 GBP=D3

The dollar index =USD was 0.23% higher at 99.079.

Also potentially driving the dollar this week is Friday's non farm payroll data in the US though given the market is already positioned for an aggressive pace of rate hikes this year, its effect could be muted say analysts.

In cryptocurrency markets, bitcoin BTC=BTSP was sitting pretty around $46,900 after jumping to as high as $47,766 in early trading, its highest level since early January.

Ether ETH=BTSP, the world's second-largest cryptocurrency, was at $3,320.