The dollar's biggest bull run in 40 years may have finally come to a screeching halt, now that the world's last dovish central bank - the Bank of Japan - has finally relaxed its iron grip on long-term interest rates.
on Tuesday with a surprise tweak to bond yield control, allowing long-term interest rates to rise more in a move aimed at easing some of the costs of prolonged monetary stimulus.
The BOJ's move will likely reduce demand for U.S. Treasuries, analysts said. Japan, the world's largest non-U.S. holder of U.S. government debt, has reduced its load of Treasuries for the last several months, selling them to defend the yen that at one point lost about 25% of its value against the dollar and as hedging costs have skyrocketed.
Societe Generale's head of FX strategy Kit Juckes said the dollar's second-biggest run-up since February 1985 was effectively over. After the BOJ's decision, U.S. 10-year Treasuries sold off, pushing yields higher by as much as 13 basis points to 3.71%. They were last up 10 bps on the day at 3.691%. This pushes forward currency rates below current, or spot rates, meaning investors that have locked in their dollar exposure - which they need to buy Treasuries - are faced with the prospect of losing out when they eventually swapped those dollars back into yen.
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