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Yen Drops as U.S. and Japanese Rate Outlooks Diverge

The yen falls against major currencies due to diverging rate outlooks between the U.S. and Japan, while the New Zealand and Australian dollars are impacted by heightened US-China tensions.


Yen Falls Due to U.S.-Japan Rate Disparity

On Monday, the yen sank against major currencies as U.S. payrolls data supported the case for more Federal Reserve rate hikes. This highlighted the growing divergence with Japan's central bank, which maintains the benchmark yield near zero. The yen slipped 0.3% against the U.S. dollar to 132.47, following a similar decline on Friday after data showed the U.S. economy continued to add jobs briskly in March.

U.S.-China Tensions Impact Antipodean Currencies

The risk-sensitive New Zealand and Australian dollars weakened amid US-China tensions over Taiwan. Beijing is a key trading partner for both Antipodean nations. The New Zealand dollar slumped 0.6% to $0.6238, while the Aussie slipped 0.21% to $0.6660.

U.S. Labor Market Growth Supports Dollar Strength

The dollar strengthened against the yen due to the continued strong growth in the U.S. labor market, despite inflation and sharp interest rate increases, according to Mizuho analysts Masafumi Yamamoto and Masayoshi Mihara. They noted that yields in the euro area, Britain, and Australia would follow U.S. yields higher, but yield spreads would see a much bigger impact in Japan.

Australian Dollars
Australian Dollars

Dollar Gains Limited Amid Inconsistent U.S. Yield Rise

However, the increase in jobs was less than the prior month, and the rise in average hourly wages was less than economists forecasted. This inconsistency may limit the dollar's potential to rise against the yen, barring a surprise in U.S. consumer price data on Wednesday.

Bank of Japan's New Governor Expected to Maintain Stimulus

Kazuo Ueda, the new Bank of Japan Governor, is expected to continue implementing massive stimulus measures. On Monday, he will give an inauguration speech at 7:30 p.m. JST (1030 GMT).

China's Military Drills Impact Offshore Yuan Trading

In offshore trading, the dollar edged 0.12% higher to 6.8830 yuan. This comes as China began three days of military drills simulating precision strikes against Taiwan following Taiwanese President Tsai Ing-wen's brief visit to the United States.