The Japanese currency dropped as much as 1.2% to 160.17 per dollar on Monday before heading into the other direction to rally over 1%.
The yen swung in holiday-thinned market conditions, punching through 160 per dollar to touch the weakest level in 34 years before erasing all its losses for the day and rebounding strongly.
The US central bank is scheduled to hold a policy meeting during which it may signal the need to keep interest rates elevated amid sticky inflation — a move that would likely support the dollar and undermine the appeal of yen assets. The Bank of Japan last week indicated financial conditions will remain easy, though policymakers have repeatedly warned that depreciation won’t be tolerated if it goes too far too fast. Earlier this month, the nation’s finance minister also flagged concerns over the yen’s decline to US Treasury Secretary Janet Yellen, which market participants saw as laying the groundwork for intervention.
ADVERTISEMENT CONTINUE READING BELOW One reason for Japan’s seeming reluctance to act may be that intervention alone cannot alter the wide gulf in interest rates that’s in part driving the yen’s decline. While the BOJ has brought local rates out of negative territory, they are still far from levels that would tempt investors from the higher yields on offer in the US and other countries.
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