U.S., Japan will cooperate appropriately on currency issues, Japan finance minister says

Yen plunges to weakest versus the dollar since 1998

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The U.S. dollar rose to its highest level versus the Japanese yen this century as traders bought the rampant buck in anticipation of more sharp rate rises from the Federal Reserve.

The greenback rose 1.3% to 139.20 yen
the cheapest price for the Japanese currency since 1998. The yen has fallen by 21% against the dollar so far this year, a sharper move than the 12% drop for the euro and the 13% decline for the British pound.

The moves, which have pushed the dollar index

to a 20-year high, reflect expectations that the U.S. central bank will be far more aggressive in raising borrowing costs as it seeks to dampen inflation. Data out on Wednesday showed annual inflation in the U.S. of 9.1%, the highest in 41 years.

The Fed is forecast to take interest rates to about 3.7% by February next year. In contrast the Bank of Japan remains wedded to maintaining an ultra-loose monetary policy, with rates currently of minus 0.1%.

The yen’s weakness also reflects a revival of the so-called “carry trade”, where investors sell yen and use the proceeds to invest in currencies with higher rates on offer.

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