Yen slides to five-year low as rest of the world sets off for hikes

The dollar hit a five-year high against the yen on Monday, as traders braced for the U.S. Federal Reserve to begin hiking rates, while reckoning the Bank of Japan remains dovish.

Commodities and commodity currencies eased amid hopes for progress in Russia-Ukraine peace talks. Cryptocurrencies rose after Tesla boss Elon Musk said on Twitter that he owns and won't sell ether, bitcoin and dogecoin.

The dollar touched 117.88 yen in Asia trade, its strongest since January 2017, at the start of a busy week of central bank meetings in the United States, Britain and Japan.

"The Ukraine conflict is not expected to prevent the BoE and Fed from raising rates in the week ahead while the BOJ stands pat," said analysts at Japan's MUFG Bank.

"Unless there is a significant de-escalation in the Ukraine conflict, the dollar should remain stronger."

Futures are pricing in between six and seven U.S. rate hikes of 25 basis points each this year, and six in Britain as the war in Ukraine adds to global inflationary pressures.

In contrast, the BOJ is set to remain dovish at its meeting this week as policymakers try to boost the country's weak economic recovery from the pandemic.

A glimmer of hope for progress toward peace emerged after U.S. Deputy Secretary of State Wendy Sherman said Russia showed signs it might be willing to have substantive negotiations over Ukraine, taking the edge off commodity currencies on Monday but sterling and the euro remain under pressure.

The Australian dollar was last down 0.5% at $0.7256 and the kiwi 0.2% lower at $0.6791. The euro was parked at $1.0915 while sterling slipped 0.2% to $1.3013, a 16-month low.

"With the UK more exposed to the Russian supply shock than the U.S., we think the risks lies with disappointment by the BoE and a weaker sterling down to $1.2894," said Commonwealth Bank of Australia analysts.

The dollar index crept up to 99.214.

Pressure on bonds was unrelenting and the two-year Treasury yield, which moves with short-term interest rate expectations, hit a 2-1/2-year high at 1.8090% and benchmark 10-year rates rose to a one-month high of 2.06%.

Bitcoin caught a boost and rose 2% to $38,560, while ether was last up 2.2% at $2,573 after traders took a bullish cue from a series of tweets from Tesla's Musk about high inflation.

"It is generally better to own physical things like a home or stock in companies you think make good products, than dollars when inflation is high," Musk said.

"I still own and won't sell my bitcoin, ethereum or doge."

 

(Additional reporting by Tom Westbrook; Editing by Shri Navaratnam and Jacqueline Wong)