Investing.com - The dollar rose to fresh seven year peaks against the yen on Wednesday as the diverging policy outlook between the Federal Reserve and the Bank of Japan continued to pressure the yen lower.
USD/JPY touched highs of 119.44, the most since August 2007 and was last at 119.27, almost unchanged for the day.
The yen has weakened broadly since the BoJ unexpectedly expanded its stimulus program in late October. In contrast, the Fed wound up its asset purchase program in October and is weighing whether or not the economy is strong enough to start raising interest rates next year.
On Monday, ratings agency Moody’s downgraded Japan's sovereign debt rating by one notch to A1.
The ratings agency cited uncertainty over Japan’s ability to cut its fiscal deficit following a decision by Prime Minister Shinzo Abe to delay a planned sales tax increase.
Prime Minister Abe dissolved parliament earlier this month, clearing the way for elections to be held on December 15 to seek a fresh mandate for his economic policies, which call for a weaker yen. The decision came after data showing that Japan’s economy unexpectedly fell into recession in the third quarter.
The dollar was higher against the euro, with EUR/USD dipping 0.10% to 1.2368, closing in on the two year lows of 1.2359 struck on November 24.
The single currency remained under pressure as investors awaited Thursday’s outcome of the European Central Bank’s policy meeting, amid heightened expectations for additional measures to spur growth and inflation in the faltering euro area economy.
The U.S. dollar index, which measures the greenback against a basket of six major currencies, was at 88.76, the strongest level since May 2010.