Ben Bernanke warned against excessive risk-taking in financial markets yesterday as the dollar was driven up in the latest manifestation of a desperate global hunt for yield.

In a speech in Chicago, the US Federal Reserve chairman said he was watching for signs that banks were resorting to speculation because of low interest rates, highlighting the danger that easy monetary policy could inflate new bubbles in asset prices.

His comments show how low interest rates have come to dominate global financial markets as waves of monetary easing send investors scurrying around the world for anywhere they can earn a return on their cash. The average yield on lowly rated corporate debt, or junk bonds, this week dipped below 5 per cent to a record low that is less than US treasury bonds yielded in 2007.

“In light of the current low interest rate environment, we are watching particularly closely for instances of ‘reaching for yield’ and other forms of excessive risk-taking, which may affect asset prices and their relationships with fundamentals,” Mr Bernanke said.

The dollar climbed against the euro and the yen after the European Central Bank cut interest rates last week and Japanese investors became net buyers of foreign bonds for the first time since the Bank of Japan launched a drastic campaign of monetary easing.

Haruhiko Kuroda, Bank of Japan governor, said the bond-buying programme was not targeting the value of the yen, in line with an agreement reached by the world’s largest nations this year to ward off fears of a fresh round of currency wars.

Wolfgang Schäuble, Germany’s finance minister, told reporters yesterday that Japan had promised to take a cautious approach on the value of its currency.

Mr Bernanke stopped short of former Fed chairman Alan Greenspan’s famous 1996 warning of “irrational exuberance” in the stock market, but it comes as equities are hitting new highs before adjusting for inflation. – Copyright The Financial Times Limited 2013