The yen jumped to more than a two-month high on Monday as speculation mounted that coordinated intervention by authorities in the U.S. and Japan could be imminent, a prospect Tokyo's top currency diplomat left wide open while keeping markets guessing.
Investors were also trimming dollar positions ahead of a Federal Reserve meeting and possible announcement by the Trump administration of a new Fed chairman.
The yen rose as much as 1.2% to 153.89 per dollar, its strongest since November.
The euro made a four-month high of $1.1898 and was last up 0.2% at $1.1855. Trade was thinned by holidays in Auckland and Australia, with Tokyo occupying investors' focus after Japan's Prime Minister Sanae Takaichi said on Sunday her government would take "necessary steps" against speculative market moves.
A source told Reuters that the New York Federal Reserve had checked dollar/yen rates with dealers, seen as a precursor to intervention, and the scramble to get out of short yen positions has the currency some 3% off Friday's low.
Japanese Finance Minister Satsuki Katayama declined to comment on the rate checks, while top currency diplomat Atsushi Mimura said the government would maintain close coordination with the United States on foreign exchange and act appropriately. The yen is under pressure in part because of concerns over Japan’s colossal government debt, which stands at more than double its economic output. A historic rise in market interest rates has raised fears for Japan’s ability to service its debt, but Takaichi has vowed to cut taxes as she campaigns for a snap election on February 8. The yen had its largest one-day gain on the dollar for nearly six months on Friday, with spikes in late Asia trade and again in the New York session. The U.S. dollar index , which measures the greenback's strength against a basket of six currencies, was down 0.1% at a four-month low of 97.155.
"Rates being checked on Friday and then stronger talk over the weekend have all contributed," said Nick Twidale, chief market strategist at ATFX Global in Sydney. The rare involvement of the Fed also has traders on edge, said Eugene Epstein, head of trading and structured products at Moneycorp in New Jersey, figuring intervention could be a joint U.S.-Japan effort and stand a stronger chance of success.
The move was a "game changer" in the foreign exchange market, said Tim Kelleher, head of institutional FX sales at Commonwealth Bank of Australia in Auckland. "That's the first time the Fed has checked a currency in more than a decade," he said. "They've threatened before, but to physically go and do it is a big change in their MO." The U.S. has not joined a coordinated effort to intervene in the Japanese currency since March 2011, when it sold yen following the Fukushima earthquake.
