SYDNEY (Reuters) - The yen pushed deeper into multi-year lows versus the dollar and euro on Tuesday as the market saw every reason to sell the currency with the Japanese central bank on a warpath to battle deflation.
The dollar advanced to 99.60 yen, having reached a fresh four-year high around 99.65 and just a whisker from the psychological 100 barrier. The euro bought 129.69 yen, a peak not seen since January 2010.
Since the Bank of Japan (BOJ) unveiled a massive stimulus program last Thursday, and swiftly followed up by buying longer-dated bonds on Monday, the yen has skidded around 8 percent versus the dollar and euro.
“For USD/JPY, upside momentum remains strong and an eventual test of 100.00 seems in the cards, though there are likely to be a number of barriers between 99.50 and 100.00,” said Vassili Serebriakov, strategist at BNP Paribas.
“Markets are increasingly focused on the notion that larger JGB purchases at longer maturities by the BOJ could push Japanese domestic long-term investors elsewhere.”
JPMorgan noted Japanese households hold 55 percent of their financial assets of 833 trillion yen in deposits and cash, compared to 14 percent in the United States and 36 percent in the euro zone. Japanese life companies also hold 140 trillion yen in JGBs.
Even the thought that some of this cash may flow abroad is lowering yields across the globe and pushing down the yen.
Commodity currencies posted hefty gains versus the yen. The Australian and New Zealand dollars soared to five-year highs of 103.70 and 84.32 respectively.
With the ‘sell-yen’ trade dominating the market, other major currencies found themselves stuck in a holding pattern.
The euro was at $1.3019, continuing to hold near $1.3000 since recovering from a four-month trough of $1.2740 plumbed last week.
The Australian dollar drifted back above $1.0400 after a brief dip to $1.0348. But Aussie-dollar bulls remain wary after two attempts to break above $1.0500 in the past few weeks ended in failure.
Sterling struggled on prospects of further easing from the Bank of England. The pound retreated to $1.5259 after a bounce to a six-week high of $1.5364 on Friday fizzled out.
Chinese inflation data due around 8:30 p.m. EST will offer the market a distraction from the unrelenting focus on the BOJ. China’s annual rate of consumer inflation is expected to ease to 2.4 percent, from a 10-month high of 3.2 percent.
Such an outcome will be welcomed by markets as it reduces the urgency for policymakers to begin tightening monetary conditions early in China’s recovery cycle.
Editing by Wayne Cole