The dollar was 0.47% lower at 140.15 yen, dropping further from the 140.285 end-December low it struck on Friday to levels last seen in July 2023
The yen hit its highest levels in more than a year on Monday in trading thinned by a holiday in Japan, as market participants increasingly expected an oversized rate cut by the Fed later this week.
Trading in Asia was slow, with markets in Japan, China and South Korea shut for holidays.
The dollar was 0.47% lower at 140.15 yen, dropping further from the 140.285 end-December low it struck on Friday to levels last seen in July 2023. It declined 1.3% on the yen last week.
The Fed’s September 17-18 meeting is the highlight of a busy week that also has the Bank of England and Bank of Japan announcing policy decisions on Thursday and Friday.
Treasury yields have been declining in the run-up to the highly anticipated meeting, particularly as odds stack up for the Federal Reserve to get aggressive with a half-point rate cut.
Benchmark 10-year yields are down 30 bps in nearly two weeks. Cash Treasuries were not traded in Asia due to the Japan holiday. Two-year yields, more closely linked to monetary policy expectations were almost 3.57% and down from around 3.94% two weeks ago.
Selling the dollar for yen has been the cleanest trade for investors looking to play the drop in Treasury yields, according to Chris Weston, head of research at Australian online broker Pepperstone.
While speculators are short and riding this lower, this trend is clearly one to align with, and the December lows for the dollar-yen pair is one to watch, he added.
Bank of Japan board members have indicated they are keen to see rates higher, and the narrowing gap between rates in Japan and other major currencies has spurred the yen higher and caused billions of dollars worth yen-funded carry trades to be unwound.
