The yen held steady on Monday, with sentiment still fragile following the Japanese currency's best weekly rally since late April on the back of shifting interest rate expectations and a stock-market sell-off.
Traders are now looking ahead to policy decisions by the Bank of Japan and the Federal Reserve, both on Wednesday, for further direction. Rising speculation for a BOJ interest rate hike this week has helped buoy the yen, with the Fed also widely expected to set the stage for a September rate cut.
Investors were also wary of further geopolitical volatility, with Israel weighing a response to a deadly rocket strike in the Israeli-occupied Golan Heights which Israel and the United States blamed on Lebanese armed group Hezbollah.
The dollar was last down 0.1% at 153.64 yen, reversing an earlier decline of as much as 0.49% to the cusp of 153 at one point.
"Sentiment remains fragile," said Shinichiro Kadota, a currency and rates strategist at Barclays in Tokyo.
Ultimately, "U.S. equities are still the key," Kadota added, referencing the demand for safe-haven currencies like the yen seen during last week's stock market rout. "Market moves have been led by U.S. equities, and we need to see if things stabilize there."
Data released on Friday showed investors have sharply cut back on their bets against the yen, which was trading at a 38-year low at the start of the month.
The U.S. earnings calendar this week is populated with heavyweights including Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL), Meta (NASDAQ:META) and Microsoft (NASDAQ:MSFT).
The dollar index, which measures the currency against the yen and five other major peers, rose 0.13% to 104.51. The euro slipped 0.21% to $1.0832.
Currency traders also need to contend with not just the BOJ and Fed on Wednesday, but the Bank of England a day later.
Sterling fell 0.41% to $1.2813 as investors looked towards the BoE meeting, where the market sees the odds of a first rate cut as a coin toss. British bond yields fell on Monday, pulling the pound lower.
Speculation has grown that the BOJ will raise interest rates on Wednesday at the same time as significantly reducing its monthly bond purchases.
The U.S. Federal Open Market Committee (FOMC) is widely expected to leave rates unchanged this week, but cut them by a quarter point at the following meeting in September.
The Fed decision is the "big event" and poses a risk to the dollar/yen pair, said Kristina Clifton, senior economist and chief currency strategist at Commonwealth Bank of Australia (OTC:CMWAY).
"Any hints of loosening by the FOMC could pull USD/JPY down significantly, but a hawkish FOMC will probably have little impact," she added.
Elsewhere, the Australian dollar was steady at $0.6545, attempting to recover from Friday's low of $0.65105, a level not seen since the start of May.
Leading cryptocurrency bitcoin advanced 3% to $69,490, receiving some support from positive comments from Republican presidential candidate Donald Trump, who told a bitcoin conference on Saturday that the U.S. must dominate the sector or China would.
