Yen keeps sliding as Europe braces for rate hikes

The yen hit a fresh 20-year low versus the dollar on Wednesday and slipped to a seven-year trough against the euro as traders awaited a European Central Bank meeting likely to leave Japan alone among its peers in sticking to ultra easy monetary policy.

The ECB meets on Thursday and markets are expecting it to at least lay the groundwork for rapid rate rises, if not begin them with a small hike.

The U.S. Federal Reserve is expected to raise its benchmark funds rate by 50 basis points next week and again in July, but Bank of Japan (BOJ) officials have given no indication of easing accommodative settings.

The yen has accordingly lost more than 4.5% from 127.09 per dollar to touch 133.22 in eight sessions, dropping hard on crosses as investors see soaring consumer prices forcing central banks around the world to crimp demand with rapid rate hikes.

It traded as low as 133.22 per dollar on Wednesday, and was last at 133.14.

Versus the Australian dollar, the yen has fallen more than 6% in 10 sessions to a seven-year low of 96.12 per Aussie, accelerating the slide after a surprisingly big rate hike in Australia on Tuesday.

It is down 10 sessions in a row on the euro, its longest losing streak in eight months, and found a seven-year low of 142.36 early in Asia trade.

“Yield differentials continue to favour the U.S. dollar, with USD/JPY breaking above 132,” said Matt Simpson, a senior market analyst at brokerage City Index.

“It is quite apparent that the BOJ favours defending yield curve control over a weaker currency,” he said. “135 is the next major line in the sand – the February 2002 high.”

The BOJ allows the benchmark 10 year bond yield to move up to 0.25 percentage points from its 0% target.

The Japanese benchmark yield was last at 0.245%, compared to U.S. 10 year yield of 3.005%, up a touch in Asian trade.

Elsewhere, the euro lost 0.2% against the dollar to $1.0677, leaving it around the middle of its recent range, and sterling was a little softer at $1.2566.

Moves were fairly modest, though, ahead of the ECB and U.S. inflation figures due on Friday.

The dollar also firmed on the risk-sensitive Australian and New Zealand dollars, leaving the Aussie down 0.36% at $0.7202 and kiwi down 0.43% at $0.6462,

“With quantitative tightening replacing quantitative easing and 100 basis points of Fed rate hikes coming this summer, you buy bonds and sell the dollar at your peril,” said Societe Generale (OTC:SCGLY) strategist Kit Juckes.