The U.S. dollar climbed into the lower 125 yen range Monday, its highest level since June 2015, on prospects of widening interest rate differentials between the United States and Japan following an upward trend in U.S. Treasury yields.
At 5 p.m., the dollar fetched 125.24-26 yen after briefly rising to 125.43 yen, compared with 124.23-33 yen in New York and 124.04-05 yen in Tokyo at 5 p.m. Friday.
The euro was quoted at $1.0909-0911 and 136.63-67 yen against $1.0870-0880 and 135.11-21 yen in New York and $1.0866-0868 and 134.79-83 yen in Tokyo late Friday afternoon.
On the Tokyo Stock Exchange, the 225-issue Nikkei Stock Average ended down 164.28 points, or 0.61 percent, from Friday at 26,821.52. The broader Topix index finished 7.15 points, or 0.38 percent, lower at 1,889.64.
The dollar accelerated its upswing against the yen in the afternoon, rising to the lower 125 yen, a level unseen in nearly seven years, from the lower 124 yen zone where it had been in the early morning.
Market participants sought the dollar on the back of contrasting approaches by the Bank of Japan and the U.S. Federal Reserve, which last month decided to raise key interest rates for the first time since 2018 and signaled six more rate increases this year to tackle high inflation.
In contrast, the Japanese central bank has maintained its powerful monetary easing.
The yield on the benchmark 10-year Japanese government bond rose 0.010 percentage point from Friday's close to 0.235 percent, tracking a rise in its U.S. counterparts after Treasury yields climbed to their highest level in over three years on speculation that the U.S. central bank would tighten its monetary policy more aggressively.
In the equities market, stocks were in negative territory for most of Monday trading, tracking declines on the technology-heavy Nasdaq index late last week.
Market participants also remained wary ahead of the U.S. consumer price index for March, to be released Tuesday, on speculation the data will show accelerating inflation.
On the top-tier Prime Market, decliners were led by precision instrument, electric appliance, and information and communication issues.
"Investors were concerned that the U.S. Federal Reserve may potentially become more aggressive in its monetary tightening amid growing fears about long-term inflation and the pace of interest rate hikes," said Makoto Sengoku, senior equity market analyst at Tokai Tokyo Research Institute.
The Nikkei briefly inched into positive territory to retake the 27,000 mark in the morning, supported by the yen momentarily falling into the upper 124 yen range against the dollar which lifted some export-oriented issues.
Meanwhile, the ongoing coronavirus lockdown in China's financial hub of Shanghai, which on Sunday logged a record number of infections, has been weighing on sentiment on fears that the country's pursuit of a zero-COVID policy may constrict supply chains further, analysts said.
Fast Retailing, which operates the Uniqlo clothing chain, fell 1,640 yen, or 2.7 percent, to 58,530 yen, on concerns over the impact of the Shanghai lockdown on sales.
Among tech shares tracking their U.S. counterparts, Tokyo Electron lost 350 yen, or 0.6 percent, to 55,070 yen, while Advantest declined 160 yen, or 1.8 percent, to 8,590 yen.
Bucking the downward trend, Tokyo Electric Power Company Holdings jumped 62 yen, or 16.2 percent, to 444 yen, after Prime Minister Fumio Kishida expressed Friday his intention to turn to renewable energy and nuclear power to combat possible power shortages as Japan attempts to phase out Russian coal imports.
Renewable energy company Renova climbed 53 yen, or 3.1 percent, to 1,789 yen following Kishida's news conference.
Among Prime Market issues, decliners outnumbered advancers 1,189 to 600, while 50 ended unchanged.
Trading volume on the Prime Market fell to 1,148.89 million shares from Friday's 1,270.96 million.