The yen edged lower on Monday following a robust rally that saw it reach its strongest level against the dollar in 12 weeks, as a rebound in equity markets diminished demand for the currency as a safe haven.
After a prolonged liquidation of longstanding short yen positions last week, traders now turn their attention to upcoming central bank decisions in Japan and the United States scheduled for Wednesday, seeking further market cues.
The dollar strengthened by 0.29% to 154.24 yen early in Asian trading, recovering from a recent low of 151.945 touched on Thursday, its lowest since May 3.
Last week marked the dollar’s steepest decline against the yen since late April, tumbling 2.36%.
Japan’s Nikkei stock average surged more than 2% on Monday, bolstering market sentiment.
Speculation has mounted that the Bank of Japan may raise interest rates on Wednesday while significantly scaling back its monthly bond purchases. The central bank had previously indicated its intention to outline its quantitative tightening plans during this meeting, first mentioned at its last gathering in June.
Market analyst Tony Sycamore of IG remarked, “If the BOJ opts to hold rates steady, it will likely need to announce a more aggressive quantitative tightening program than anticipated to prevent a ‘sell-the-rumour, buy-the-fact’ reaction in USD/JPY.”
Meanwhile, the Federal Reserve is widely anticipated to maintain rates unchanged this week, with expectations of a quarter-point cut at the subsequent meeting in September.
The yen’s demand could swiftly rekindle if stock markets retreat, particularly as heavyweight U.S. companies such as Amazon, Apple, Meta, and Microsoft report earnings this week.
Against other currencies, the euro strengthened by 0.25% to 167.37 yen and remained steady at $1.0859. It weakened marginally by 0.07% against the British pound to 84.32 pence, hovering near Friday’s high of 84.48 pence, the strongest since July 10.
The British pound gained 0.12% to $1.2882.
Market sentiment regarding the Bank of England’s policy decision on Thursday suggests a balanced probability of a rate cut.
Elsewhere, the Australian dollar recovered by 0.31% to $0.6568 from Friday’s low of $0.65105, its lowest level since early May.
Bitcoin, the leading cryptocurrency, rose by 2% to $68,793, supported by favorable comments from Republican presidential candidate Donald Trump during a bitcoin conference on Saturday, where he emphasized the importance of U.S. dominance in the sector to counter China.
