The Japanese yen recouped some of its losses on Monday after retreating late last week, as markets assessed the timing of further interest rate hikes in Japan and the likelihood of official intervention, while thin year-end trading left European currencies largely stable.
A summary of opinions from Bank of Japan policymakers at their December meeting, published on Monday, showed that members discussed the need to continue raising interest rates. Japanese Finance Minister Satsuki Katayama said last week that Japan has full freedom to act against excessive moves in the yen.
Bart Wakabayashi, head of State Street’s Tokyo branch, said these intervention warnings have helped limit positioning in dollar/yen, although bearish sentiment toward the Japanese currency is evident in other foreign exchange pairs.
“I think holding long yen positions is extremely painful,” Wakabayashi said. “We’re seeing some expression of short yen positions against those currencies, especially against the Australian dollar.”
He added: “The market is still trying to understand the role the yen plays now in terms of being a safe haven.”
The dollar was last down 0.26% at 156.3 yen, after jumping 0.45% on Friday. The yen traded at 105.02 per Australian dollar, just shy of the 17-month low of 105.08 reached on Friday.
The dollar index, which measures the US currency against a basket of peers, edged slightly lower to 97.95. The euro ticked up marginally to $1.1780, while sterling was steady at $1.3503.
The Bank of Japan raised its benchmark interest rate to a 30-year high of 0.75% from 0.5% at its December meeting. The summary of opinions released on Monday showed that many board members saw the need for further rate hikes, with real interest rates still deeply negative once inflation is taken into account.
However, the rate hike failed to stem the yen’s decline, with the currency falling to 157.78 per dollar on December 19, prompting renewed intervention warnings. Japan last intervened to support the yen in July 2024, when it bought the currency after it slid to a 38-year low of 161.96 per dollar.
With limited data this week and thin trading ahead of New Year holidays in many markets, geopolitical developments moved to the forefront.
US President Donald Trump said on Sunday that he and Ukrainian President Volodymyr Zelenskyy were “very close, perhaps extremely close” to reaching an agreement to end the war in Ukraine, although both leaders acknowledged that some of the most complex issues remain unresolved.
In Asia, tensions remained elevated as China deployed military units around Taiwan ahead of live-fire drills scheduled for Tuesday. Meanwhile, North Korean state media reported that leader Kim Jong Un oversaw the launch of long-range missiles on Sunday, while South Korea’s Yonhap news agency said further tests could take place around New Year’s Day.
The main data focus this week will be the release of minutes from the Federal Open Market Committee meeting on Tuesday, from a gathering held earlier this month. The US Federal Reserve cut interest rates at that meeting and projected just one additional cut next year, while market participants have priced in at least two more.
Goldman Sachs analysts said in a note: “The FOMC adjusted its post-meeting statement to signal a higher bar for further rate cuts, and Federal Reserve Chair Jerome Powell reinforced this message during his press conference. We expect the December minutes to point to continued disagreement among committee members over the appropriate near-term path of monetary policy.”
The Australian dollar was little changed at $0.6717, while the Swiss franc was firmer at 0.787 per dollar.
