FOREX-Dollar climbs against yen as Fed's inflation shift drives yields higher

* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E

By Eimi Yamamitsu
TOKYO, Aug 28 (Reuters) - The dollar hit a two-week high
against Japan's yen on Friday, supported by U.S. bond yields,
which rose on the Federal Reserve's aggressive new strategy to
lift employment and an increased tolerance for higher inflation.
Investors in Asia are also keenly awaiting a briefing from
Japanese Prime Minister Shinzo Abe later in the day, as worries
about his health fuelled wider concerns about his leadership and
what that might mean for economic relations with the United
States.
The safe-haven yen fell against the dollar, dropping 0.26%
to 106.695 per dollar JPY= , its lowest since Aug. 14 and
edging near this month's low of 107.05.
Speaking at the Fed's Jackson Hole symposium, which was held
virtually this year, Chair Jerome Powell said the central bank
will seek to achieve 2% inflation on average, so that periods of
super-low inflation would likely be followed by an effort to
lift inflation "moderately above 2% for some time," and to
ensure economic recovery and job creation. "Since FOMC meeting in June, the treasury yields have
declined and the dollar fell, but I think that will not be the
case for the time being, especially after the Fed's speech. The
market is more likely to see higher treasury yields," said
Masafumi Yamamoto, chief currency strategist at Mizuho
Securities in Tokyo.
The benchmark 10-year US10YT=RR yield, which rises when
bond prices fall, rose to 0.7700% in Asian trade, a level unseen
since June 16.
"It's clear we saw a 'buy the rumour, sell the fact' play
out, notably in U.S. Treasuries, which have led broad market
moves," said Chris Weston, Head of Research at brokerage
Pepperstone in Melbourne.
"The move higher in Treasury yields post-Powell did promote
a USD rally, although we find it flat on the day, with a mixed
picture across the well-traded FX pairs."
Following Powell's comments, the dollar initially fell
sharply against the yen and the euro, but reversed as
longer-term U.S. Treasury yields bounced back to their highest
levels in months.
The yen also fell against the euro EURJPY= , the Australian
dollar AUDJPY= and the New Zealand dollar NZDJPY= on higher
U.S. Treasury yields.
The euro changed hands at $1.18565 EUR= , after almost
hitting last week's low of $1.17545 overnight.
Against six major currencies, however, the dollar index
=USD edged down 0.23% to 92.817, erasing its earlier gains.
Traders in the yen now shift their focus to Japanese Prime
Abe's news conference.
Ruling party officials have said Abe's health is fine, but
his recent hospital visits, one of which ran nearly eight hours,
have fanned speculation whether he will be able to continue in
the job until the end of his term in September 2021.
"There is no doubt the relationship between Prime Minister
Abe and President Trump has stabilised U.S.-Japan ties. That has
been a positive factor, or a support for the dollar/yen," said
Tohru Sasaki, head of Japan market research at J.P. Morgan.
"There wouldn't be any immediate, direct impact to the
market since politics affect the market only subtly. However, if
the possibility arises that such relationship between the two
countries could change, that would gradually become an
instability factor," he said.
Elsewhere in the currency, the offshore yuan last traded at
6.8724 per dollar CNH= .
The British pound changed hands at $1.3243 GBP=D3 , after
hitting its highest since Dec. 31 of $1.3284 on Powell's
comments.
The Australian dollar AUD=D3 rose 0.37% to $0.72860
AUD=D3 , while the kiwi NZD=D3 gained 0.36% at $0.6662 per
dollar.