The yen jumped to its highest level in 12 weeks against the dollar on Thursday
The yen firmed on Monday, reversing earlier declines, as an escalation in Middle-East tensions reignited safe-haven demand for the currency.
The market reaction exposes the fragility of investor sentiment following last week’s tech share sell-off, which helped the yen jump to its highest level in 12 weeks against the dollar on Thursday.
The dollar was down 0.17% at 153.51 yen after sliding 0.35% initially.
It had started the day by adding 0.36%, as the global equity market rebound from Friday extended into Monday in Asia, with Japan’s Nikkei stock average more than 2% higher.
The dollar slipped 151.945 on Thursday for the first time since May 3, and closed the week 2.4% lower, its worst weekly performance since late April.
The rally appeared to stall in dollar-yen following the Israel news, said Shinichiro Kadota, a currency and rates strategist at Barclays in Tokyo. Sentiment remains fragile.
U.S. equities are still the key, Kadota added. Market moves have been led by U.S. equities, and we need to see if things stabilise there.
Currency traders also need to contend with policy decisions from both the BoJ and Federal Reserve on Wednesday, followed by the BoE a day later.
Speculation has grown that the Bank of Japan will hike interest rates on Wednesday at the same time as significantly lowering its monthly bond purchases. It had promised to outline its quantitative tightening (QT) plans at this meeting during its previous gathering last month.
If the BoJ holds off on raising rates, it will need to announce a more aggressive QT programme than expected to avoid a ‘sell-the-rumour, buy-the-fact’ reaction in USD/JPY, said Tony Sycamore, a market analyst at IG.
