TOKYO, Sept 1 — The dollar climbed to a 24-year peak against the Japanese yen today, as investors braced for higher US interest rates while Japanese rates remain firmly pinned down.

In Asia trade, the greenback hit a high of ¥139.69 (RM4.48), its highest since 1998, after gaining about 0.5 per cent on the previous day’s close. It was last up 0.17 per cent at ¥139.2.

"The main driver remains rate differentials between Japan and the U.S., and even today’s price action just follows the overnight move higher in US rates. We think the path ahead is going to depend on how US rates behave,” said Sosuke Nakamura, a strategist at JPMorgan in Tokyo.

Expectations for a 75-basis-point US rate hike at next month’s Federal Reserve meeting are rising on the back of solid economic data, with Fed funds futures last pointing to around a 75 per cent chance of such an increase.

This helped push the yield on benchmark 10-year US Treasuries to a two month high of 3.219 per cent early on Tuesday. Japan’s policy of yield curve control means its 10-year government bond yield is just 0.24 per cent.

A senior finance ministry official said on Thursday that Japan was watching currency moves with a "high sense of urgency”.

The surging dollar also pinned other major currencies down. The euro fell 0.3 per cent to just hold above parity at US$1.00235, while the risk-sensitive Australian and New Zealand dollars hit their lowest levels since July.

They later pared losses, leaving the Aussie down 0.18 per cent at US$0.6831 (RM3.06), and the kiwi down 0.24 per cent at US$0.6105.

Sterling was 0.16 per cent lower at US$1.16015, having recovered a little from a new 2-1/2 year low of US$1.1570 hit early in the session. The pound lost 4.6 per cent in August, its steepest monthly decline since October 2016.

"The high inflation and (the) gas supply are still major issues in both the euro zone and the UK, and I think it’s going to keep downward pressure on both those currencies,” said Joseph Capurso, head of international economics at Commonwealth Bank of Australia.

"I can see the euro going back below parity again quite soon.

Euro zone inflation rose to a record high at 9.1 per cent in August, data released on Wednesday showed, solidifying the case for further big European Central Bank rate hikes to tame it.

The US dollar index, which measures the greenback against a basket of currencies, was up 0.18 per cent at 108.93, not far off its two-decade high of 109.48 hit on Monday. — Reuters