U.S. Dollar Rises for Second Straight Quarter as Yen Falls 6%

The U.S. dollar is set to mark its second consecutive quarter of gains, surging to a nearly four-decade high against the Japanese yen. This rise comes despite a decline in overnight U.S. Treasury yields and data showing a solid rise in Tokyo's Consumer Price Index (CPI).

Performance Highlights

According to Jinshi, the yen has fallen 6% against the dollar this quarter and a staggering 12% so far this year, making it the worst-performing currency among the G10 nations. The euro has also hit a record low against the yen, further illustrating the yen's weakening position.

Ray Attrill, Head of Foreign Exchange Strategy at National Australia Bank, commented: "In a low volatility environment, the market's desire for carry trades remains strong. After the U.S. dollar/Japanese yen rose above 160 without any intervention, market apprehension appears to have lessened significantly."

Factors Influencing the Dollar's Strength

The primary driver behind the dollar's ongoing rally is key U.S. inflation data anticipation, which could further influence Federal Reserve policy decisions. Despite an overnight decline in U.S. Treasury yields, the dollar attracts investors looking for stability amid global uncertainties.

Additionally, robust economic indicators from the U.S. have bolstered confidence in the dollar. These factors have offset concerns that could have otherwise weakened the greenback.

The Yen's Struggles

Japan's yen has faced substantial pressure, unable to gain ground against the dollar despite positive domestic economic data, such as a notable rise in Tokyo's CPI. The relentless depreciation of the yen highlights the contrasting economic conditions between the U.S. and Japan.

"The yen's significant decline, particularly against the dollar, underscores the ongoing challenges faced by Japan's economy, despite favourable CPI figures," Attrill noted.

Market Outlook

As the U.S. dollar continues to strengthen and the yen weakens, traders are likely to maintain their preference for carry trades. The dollar's resilience and the yen's decline suggest that these trends may persist, especially in a low-volatility environment.
The U.S. dollar's march to a nearly four-decade high against the yen signals sustained confidence in the greenback's strength, driven by favourable economic indicators and anticipation of key inflation data. Meanwhile, the yen's persistent decline highlights the challenges within Japan's economic landscape.