By Ayano Shimizu,
The Japanese yen slipped to a fresh 20-year low in the upper 126 level against the U.S. dollar in Tokyo on Friday, as it continued to face selling fueled by the prospect of a widening policy gap between the Bank of Japan and the U.S. Federal Reserve.
The yen sank below the previous low of 126.31 quoted Wednesday, briefly falling to 126.70, its weakest level since May 2002, after U.S. Treasury yields surged overnight on growing expectations that the U.S. central bank will raise interest rates aggressively, dealers said.
Currency movements were volatile due to subdued trading, with many market participants from overseas taking time off ahead of Easter, dealers said, adding that Japanese importers sought the dollar for settlement purposes.
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At 5 p.m., the dollar fetched 126.45-48 yen compared with 125.84-94 yen in New York and 125.33-34 yen in Tokyo at 5 p.m. Thursday.
The euro was quoted at $1.0808-0813 and 136.71-75 yen against $1.0823-0833 and 136.33-43 yen in New York and $1.0908-0909 and 136.71-75 yen in Tokyo late Thursday afternoon.
The yen has been weakening rapidly versus the dollar as market participants have unloaded the Japanese currency amid the prospect of widening interest rate differentials between the United States and Japan.
"U.S. Treasury yields have recently surged rapidly but it may slow down. It is possible for the dollar to become top-heavy ahead of the Fed's monetary policy meeting" in early May, said Yukio Ishizuki, a senior foreign exchange strategist at Daiwa Securities Co.
But some dealers have said the Japanese yen could sink to as low as 130 to the dollar in the coming weeks.
The Fed decided last month to raise key interest rates for the first time since 2018 and signaled several more hikes this year to tame high inflation.
The BOJ, on the other hand, has maintained its powerful monetary easing and conducted an emergency bond buying operation last month to keep 10-year Japanese government bond yields from rising above their implicit upper limit.
The depreciation of the yen has triggered worries about the negative impact it will have on the Japanese economy as it will inflate import costs for resource-scarce Japan, especially at a time when the country has seen higher energy and commodity prices.
In a regular press conference on Friday, Japan's Finance Minister Shunichi Suzuki said depreciation of the yen could be viewed as "bad" in a situation where material prices have not been fully passed on and wage increases have been insufficient.
On the stock market, the 225-issue Nikkei Stock Average ended down 78.81 points, or 0.29 percent, from Thursday at 27,093.19. The broader Topix index finished 11.74 points, or 0.62 percent, lower at 1,896.31.
The Nikkei index opened sharply lower, dragged down by weak technology shares after an overnight decline on Wall Street. But losses were later trimmed and the index briefly rose into positive territory, as export-oriented shares were boosted by the yen's weakening against the dollar.
The market was also supported by the advance of blue chip Fast Retailing, operator of casual clothing brand Uniqlo, which jumped 5,260 yen, or 8.8 percent, to 64,810 yen after reporting Thursday a record operating profit for the first half through February.
Among Prime Market issues, declining issues outnumbered advancers 1,350 to 434, while 55 ended unchanged. Decliners were led by precision instrument, electric appliance and air transportation issues.
Trading volume on the Prime Market fell to 880.06 million shares from Thursday's 1,010.05 million.
The yield on the benchmark 10-year Japanese government bond edged up 0.005 percentage point from Thursday's close to 0.240 percent, tracking an overnight rise in U.S. Treasury yields.
