Dollar nears 3-year high against yen as markets retain bets on Fed taper

© Reuters. FILE PHOTO: A U.S. dollar banknote is seen in this illustration taken May 26, 2020. REUTERS/Dado Ruvic/Illustration/File Photo

By Hideyuki Sano and Alun John

TOKYO/HONG KONG (Reuters) - The dollar rose to its highest in nearly three years versus the yen on Monday as investors remained confident the U.S. Federal Reserve will announce a tapering of its massive bond-buying next month despite softer U.S. payrolls figures.

That jobs data released on Friday pushed U.S. bond yields higher, and so the yen, which is known to be most sensitive to yield differentials, slipped to as low as 112.725 yen per dollar in Asian hours on Monday - a level last seen in December 2018.

"The dollar could rise to around 113 yen. But to extend its gains further to 114 yen would require a much larger rise in the 10-year U.S. Treasuries to nearly 2%, which I don't think likely at this stage," said Jun Arachi, senior strategist at Rakuten Securities.

The Japanese currency was also hurt by a slight tilt towards riskier currencies as sterling and the Australian dollar both gained slightly on the greenback, leaving the dollar's index little changed at 94.154, not far from its one-year high of 94.504 touched earlier this month.

U.S. currency and fixed income markets are closed on Monday for a holiday but benchmark 10-year Treasuries yield hit a four-month high of 1.617% on Friday, even after data showed the U.S. economy created the fewest jobs in nine months in September, significantly underperforming economists' forecasts.

However, data for August was revised up sharply and the jobless rate dropped to an 18-month low, suggesting fears of labour shortage remain justified, keeping worries about inflation alive and giving the Federal Reserve justification to reduce its emergency stimulus begun last year.

"Although the headline payroll figure was weak, when you look into details, the outlook remains solid and there isn't anything that would prevent the Fed from tapering next month," said Shinichiro Kadota, senior FX strategist at Barclays (LON:BARC).

The Chinese yuan was little moved by the ongoing travails of Chinese developer China Evergrande Group, even as offshore bondholders brace for news on more than $148 million in looming bond coupon payments after the company missed two coupon deadlines last month.

The offshore yuan was last at 6.4370 per dollar towards the top end of its recent range, but still short of its high of 6.422 hit in September.

The Australian dollar firmed a little edging nearer to its highest in a month, helped by strong commodities prices and a partial reopening of Sydney, Australia's largest city.

Concern about inflation is not limited to the United States, with supply disruptions and rising commodity prices affecting many other countries.

The British pound held firmer at $1.3634, extending its recovery from a nine-month low set late last month, on growing expectations that the Bank of England could raise interest rates to curb soaring inflation.

The Canadian dollar changed hands at C$1.2466 per U.S. dollar, having hit a two-month high of C$1.24525 on Friday thanks to surprisingly strong Canadian payrolls data and lofty oil prices.

On the other hand, the euro was soft at $1.1575, hovering a tad above its Wednesday's low of $1.1529, its weakest level since July last year.

In cryptos, bitcoin gained 3.5% to a new five month high of $56,576 extending gains over the weekend, ether also gained 3% to softer at $3,528.