Yen Falls As JGB Yields Decline, Risk Sentiment Improves On Recovery Hopes

The Japanese yen weakened against its major counterparts in the Asian session on Thursday, as investors cheered the possibility of policy tightening to contain inflationary pressures in the U.S.

The long term treasury yields fell on Tuesday on expectations for an imminent tapering announcement and the likelihood of an earlier interest rate hike than projected.

Strong U.S. inflation data and hawkish Fed minutes prompted investors to bring forward the expectations for a potential rate hike to September 2022 from December 2022.

Japanese Prime Minister Fumio Kishida dissolved the lower house of parliament to conduct a general election at the end of this month.

Kishida has promised to roll out an economic package worth "tens of trillions of yen" after the election to mitigate the effects of the virus.

Japanese government bond yields fell, with the 10-year JGB yield dropping 0.5 basis points to 0.080 percent.

The Japanese yen edged down to 113.60 against the greenback, from a 2-day high of 113.21 seen at 6:30 pm ET. If the yen falls further, 115.00 is likely seen as its next support level.

The yen declined to more than a 3-month low of 131.73 against the euro and a 5-1/2-year low of 123.23 against the franc, off its early highs of 131.22 and 122.33, respectively. The next possible support for the yen is seen around 134.00 against the euro and 124.00 against the franc.

The yen touched a 4-month low of 155.40 against the pound, down from a high of 154.57 hit at 5 pm ET. The yen may challenge support around the 157.00 level.

The yen slipped to more than a 3-month low of 83.97 against the aussie, more than 4-month low of 79.37 against the kiwi and a 3-1/2-year low of 91.56 against the loonie, falling from its prior highs of 83.48 and 78.79 and a 2-day high of 90.91, respectively. The currency is likely to face support around 86.00 against the aussie, 82.00 against the kiwi and 94.00 against the loonie.

Looking ahead, Canada manufacturing sales for August, U.S. PPI for September and weekly jobless claims for the week ended October 9 are due in the New York session.