The dollar and euro both climbed 1% on the yen, each set for its biggest daily gain since end October, with the greenback reaching 144.27 yen, and the common currency 157.68.
The yield on the benchmark 10-year Treasury, which nudged at 5% for the first time in 16 years overnight, has risen by 30 basis points this week - marking its biggest weekly rise since April 2022. War in the Middle East has sparked a push into safe-haven assets such as gold and the Swiss franc, but trading in Treasuries has been dominated by the rate outlook.
Rates markets are priced for an almost 40% risk of another Fed hike this year, against slimmer chances for another rise in Europe, and the difference has helped prop up a dollar many had bet would swiftly fall once short-term rates peaked.
Japan s low yields have made the currency an easy target for short-sellers and funding trades, with the widening gap in the interest rates between Japan and the United States leading to persistent weakness in the yen.