TOKYO - The yen slipped Monday to its lowest level against the U.S. dollar in over 23 years, while stocks plunged in Tokyo as high inflation in the United States last month fueled expectations of aggressive monetary tightening by the Federal Reserve.
The Japanese currency briefly accelerated its decline to trade around 135.20, its weakest level since October 1998, on anticipation of a further widening of the interest rate gap between Japan and the United States.
The yield on the benchmark 10-year Japanese government bond, meanwhile, briefly rose to its highest level in more than six years as investors sold the debt amid growing sentiment that the Bank of Japan may move to help curb the yen's fall, possibly tweaking its ultraloose monetary policy.
At 5 p.m., the dollar fetched 134.59-60 yen compared with 134.35-45 yen in New York and 133.59-62 yen in Tokyo at 5 p.m. Friday.
The euro was quoted at $1.0466-0467 and 140.87-91 yen against $1.0504-0514 and 141.27-37 yen in New York and $1.0625-0626 and 141.95-99 yen in Tokyo late Friday afternoon.
On the stock market, the 225-issue Nikkei Stock Average ended down 836.85 points, or 3.01 percent, from Friday at 26,987.44. The broader Topix index finished 42.03 points, or 2.16 percent, lower at 1,901.06.
On the top-tier Prime Market, decliners were led by machinery, electric appliance and transportation equipment issues.
The yen's renewed drop came after the U.S. consumer price index for May, released Friday, failed to show inflation peaking in the country, heightening expectations that the Fed may push for more aggressive rate hikes.
The data showed prices rising 8.6 percent from the same month a year earlier, the steepest inflation in over 40 years, up from an 8.3 percent inflation rate recorded in April and higher than the 8.3 percent rate expected in the market consensus.
"Monetary policies in the United States and Japan currently face opposite directions, with the yen's fall unlikely to stop unless they start to see the same way," said Yuji Saito, head of the foreign exchange department at Credit Agricole Corporate & Investment Bank in Tokyo.
The inflation data have raised concerns among some participants that the Fed may increase its rate hike to 0.75 percentage point, compared with the 0.50 percentage point rise in its last hike in early May, dealers said.
Market participants have been buying the dollar in recent months on the back of contrasting approaches by the BOJ and the Fed, with the latter deciding in March to raise key interest rates for the first time since 2018 to tame inflation.
In contrast, the Japanese central bank has maintained its powerful monetary easing, with BOJ Governor Haruhiko Kuroda reiterating last week that the bank will stay the course to attain its 2 percent inflation goal in a sustainable way.
The exchange market was little affected by a rare statement issued Friday by the Finance Ministry, BOJ and Financial Services Agency expressing concern about the yen's recent weakening against the dollar.
Investors will likely test the 140 range, with nothing hindering the Japanese currency's tumble, dealers said.
On the equities market, the Nikkei index briefly tumbled nearly 900 points, or more than 3 percent, to fall below the 27,000 line for the first time in over two weeks following the release of the U.S. consumer price data.
Market participants were becoming increasingly fearful of stagflation in the world's largest economy resulting from economic stagnation and inflation taking place simultaneously, analysts said.
Among Prime Market issues, declining issues outnumbered advancers 1,457 to 332, while 49 ended unchanged.
Technology shares met selling after the tech-heavy Nasdaq index plunged over 3 percent on Friday.
Tokyo Electron declined 2,930 yen, or 5.3 percent, to 52,730 yen, Advantest fell 410 yen, or 5.0 percent, to 7,800 yen, and Screen Holdings sank 580 yen, or 5.2 percent, to 10,620 yen.
Trading volume on the Prime Market fell to 1,218.59 million shares from Friday's 1,272.53 million.
The 10-year government bond yield hit 0.255 percent at one point, the highest since January 2016 and above an implicit cap set around the BOJ's yield target.
It later declined and ended the day at 0.250 percent, unchanged from Friday's close, after the central bank conducted a bond-buying operation to stem a rise in long-term interest rates. The BOJ also said it will implement a similar operation on Tuesday.
Bond yields move inversely to prices.
